What is FICO anyway?

FICO stands for Fair Isaac & Co., which is the name of the accounting company that pioneered credit scoring in the late 1950s. The FICO score utilizes mathematical models to determine a single, numerical value that represents your credit history.

How do credit card companies use my FICO score?

The answer to that question depends on the specific credit card you are applying for. Different cards require different FICO scores for approval. These requirements can generally be divided into three categories: Any, Good and Excellent FICO scores.

What does Any mean?

Any means that almost anyone – regardless of their FICO score – can get approved for this type of credit card. However, keep in mind that a low FICO score indicates a higher degree of risk to the creditor – i.e. you are less likely to be able to pay back the card balance. In such a case, the bank or credit agency will cover its risk by adjusting the terms of the offer to their favor. Even with a card that accepts any FICO score, expect an inverse relationship between your score and the card’s interest rate and late fees. Applications for business credit cards will also have FICO score requirements.

Bottom line: The lower your FICO score, the higher the fees and interest.

What does Good mean?

A good FICO score is a minimum of 675. To have a good score, you must have verifiable and steady employment, a respectable annual income, no more than one late payment and a fairly low ratio of utilized credit to available credit. If your FICO score falls below 675 but you not have incurred any late payments in the last year and your total debt burden is small, you may still be eligible for approval of a card with a good FICO score requirement.

Bottom line: Most credit cards are available to you if you maintain a responsible approach to managing your credit.

What does Excellent mean?

An excellent FICO score is 720 or higher. Excellent scorers have low debt utilization, a fairly high annual income and no late payments within their credit history. Creditors will often woo those with excellent credit scores by offering them low annual interest and cash-back rewards.

Bottom line: Perfect credit will earn you access to the most exclusive credit cards.

Whatever your FICO credit score is, keep in mind that the decision to approve or deny a credit card application is not a purely objective one. Even those with an unblemished credit history may be denied a credit card if they already have a high debt load. If you have been denied credit, request a free copy of your credit report to make sure there are no mistakes on it.

Check your own Credit Score at Experian!

Watch your Interest Rates

Many credit card users aren’t even aware that different interest rates exist at a single company. Some credit companies charge higher for cash advances, while others will charge punitive rates for late payments. Try to negotiate a rate that suits you and your spending habits by speaking to the company’s representative, and don’t be shy to be a little forceful when making a request for lower interest rates. You’d be surprised how much you can achieve with a little chutzpah! If you’re not happy with your rate you should look at cards offering intro balance transfer rates. This allows you to transfer the amount you owe to another company for a lower introductory interest rate. Some people consistently bounce from one lower rate to the next, however, this can have an effect on your credit score.

Curb Unnecessary Spending

This one requires a lot of willpower! Don’t fall prey to impulse buying. Paying with plastic is easy and hassle-free. Especially around holiday time, it is very tempting to go into a mall, buy all the great things you see and then push the payment issue out of mind by putting all expenses on your card. However, payment day will soon come around and you’ll find yourself saddled with a debt that leaves you in tears. There are certain things that you can do to avoid this scenario. If you need to shop for gifts, make a list and stick to it. If you are shopping for clothes, sort through your wardrobe first and decide exactly what you need. Don’t get sidetracked by great – but unnecessary – sale goods. If you find that you still cannot control your impulses, try to limit the use of your credit card to the basic necessities (food, gas, bills) and pay for clothing, gifts and entertainment in cash.

Pay your Bills on Time

Even if you are one day late in paying those bills, you’ll be slapped with late payment fees by your credit card company. Learn to pay your bills even earlier than the last date, even if you have to make use of a diary or calendar to remind you to do so.

Prove Your Worth

By paying your bills on time and not exceeding your credit amount, you will soon create for yourself an excellent credit record. Not only is this a good thing to have in other areas of life, but it will also prove to your credit card company that you are serious about financial management. When you have created a good enough record over a certain length of time, approach the company and ask for better terms on your card. In today’s world, where so many people abuse the credit line given to them, financial companies naturally value their good customers and will do all they can to keep them on board.