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.
