What is a FICO Score?
A FICO score is a credit score developed by Fair Isaac &
Co. Credit scoring is a method of determining the likelihood that
credit users will pay their bills. Fair, Isaac began its pioneering
work with credit scoring in the late 1950s and, since then, scoring has
become widely accepted by lenders as a reliable means of credit
evaluation. A credit score attempts to condense a borrowers credit
history into a single number. Fair, Isaac & Co. and the credit
bureaus do not reveal how these scores are computed. The Federal Trade
Commission has ruled this to be acceptable.
Credit scores are calculated by using scoring models and
mathematical tables that assign points for different pieces of
information which best predict future credit performance. Developing
these models involves studying how thousands, even millions, of people
have used credit. Score-model developers find predictive factors in the
data that have proven to indicate future credit performance. Models can
be developed from different sources of data. Credit-bureau models are
developed from information in consumer credit-bureau reports.
Credit scores analyze a borrower's credit history
considering numerous factors such as:
- Late payments
- The amount of time credit has been established
- The amount of credit used versus the amount of credit
available
- Length of time at present residence
- Employment history
- Negative credit information such as bankruptcies,
charge-offs, collections, etc.
There are really three FICO scores computed by data provided
by each of the three bureaus––Experian, Trans Union and
Equifax. Some lenders use one of these three scores, while other
lenders may use the middle score.
Frequently Asked Questions (FAQs)
How can I increase my score? While it is difficult
to increase your score over the short run, here are some tips to
increase your score over a period of time.
- Pay your bills on time. Late payments and collections can
have a serious impact on your score.
- Do not apply for credit frequently. Having a large number
of inquiries on your credit report can worsen your score.
- Reduce your credit-card balances. If you are "maxed" out
on your credit cards, this will affect your credit score negatively.
- If you have limited credit, obtain additional credit. Not
having sufficient credit can negatively impact your score.
What if there is an error on my credit report? If you
see an error on your report, report it to the credit bureau. The three
major bureaus in the U.S., Equifax (1-800-685-1111), Trans Union
(1-800-916-8800) and Experian (1-888-397-3742) all have procedures for
correcting information promptly. Alternatively, your mortgage company
may help you correct this problem as well.
