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.
