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.
