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What is a FICO or Credit Score?
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| Along with the
credit report, lenders can also buy a credit
score based on the information in the report.
That score is calculated by a mathematical
equation that evaluates many types of
information that are on your credit report at
that agency. By comparing this information to
the patterns in hundreds of thousands of past
credit reports, the score identifies your level
of future credit risk. In order for a FICO®
score to be calculated on your credit report,
the report must contain at least one account
which has been open for six months or greater.
In addition, the report must contain at least
one account that has been updated in the past
six months. This ensures that there is enough
information - and enough recent information - in
your report on which to base a score.
About FICO scores
Credit bureau scores are often called "FICO
scores" because most credit bureau scores used
in the US are produced from software developed
by Fair Isaac and Company. FICO scores are
provided to lenders by the three major credit
reporting agencies: Equifax, Experian and
TransUnion.
FICO scores provide the best guide to future
risk based solely on credit report data. The
higher the score, the lower the risk. But no
score says whether a specific individual will be
a "good" or "bad" customer. And while many
lenders use FICO scores to help them make
lending decisions, each lender has its own
strategy, including the level of risk it finds
acceptable for a given credit product. There is
no single "cutoff score" used by all lenders and
there are many additional factors that lenders
use to determine your actual interest rates.
Other Names for FICO Scores
FICO scores have different names at each of the
three credit reporting agencies. All of these
scores, however, are developed using the same
methods by Fair Isaac, and have been rigorously
tested to ensure they provide the most accurate
picture of credit risk possible using credit
report data.
| CREDIT
REPORTING AGENCY |
FICO SCORE |
| Equifax |
BEACON® |
| Experian |
Experian/Fair Isaac
Risk Model |
| TransUnion |
EMPIRICA® |
More than one score
In general, when people talk about "your score",
they're talking about your current FICO score.
However, there is no one score used to make
decisions about you. This is true because:
- Credit bureau scores are not the only
scores used.
Many lenders use their own scores, which
often will include the FICO score as well as
other information about you.
- FICO scores are not the only credit
bureau scores.
There are other credit bureau scores,
although FICO scores are by far the most
commonly used. Other credit bureau scores
may evaluate your credit report differently
than FICO scores, and in some cases a higher
score may mean more risk, not less risk as
with FICO scores.
- Your score may be different at each
of the three main credit reporting agencies.
The FICO score from each credit reporting
agency considers only the data in your
credit report at that agency. If your
current scores from the three credit
reporting agencies are different, it's
probably because the information those
agencies have on you differs.
- Your FICO score changes over time.
As your data changes at the credit reporting
agency, so will any new score based on your
credit report. So your FICO score from a
month ago is probably not the same score a
lender would get from the credit reporting
agency today.
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FICO Scores are calculated from a lot of
different credit data in your credit
report. This data can be grouped into
five categories as outlined below. The
percentages in the chart reflect how
important each of the categories is in
determining your score.
These percentages are based on the
importance of the five categories for
the general population. For particular
groups - for example, people who have
not been using credit long - the
importance of these categories may be
somewhat different.
Payment History
- Account payment information on
specific types of accounts (credit
cards, retail accounts, installment
loans, finance company accounts,
mortgage, etc.)
- Presence of adverse public
records (bankruptcy, judgements,
suits, liens, wage attachments,
etc.), collection items, and/or
delinquency (past due items)
- Severity of delinquency (how
long past due)
- Amount past due on delinquent
accounts or collection items
- Time since (recency of) past due
items (delinquency), adverse public
records (if any), or collection
items (if any)
- Number of past due items on file
- Number of accounts paid as
agreed
Amounts Owed
- Amount owing on accounts
- Amount owing on specific types
of accounts
- Lack of a specific type of
balance, in some cases
- Number of accounts with balances
- Proportion of credit lines used
(proportion of balances to total
credit limits on certain types of
revolving accounts)
- Proportion of installment loan
amounts still owing (proportion of
balance to original loan amount on
certain types of installment loans)
Length of Credit
History
- Time since accounts opened
- Time since accounts opened, by
specific type of account
- Time since account activity
New Credit
- Number of recently opened
accounts, and proportion of accounts
that are recently opened, by type of
account
- Number of recent credit
inquiries
- Time since recent account
opening(s), by type of account
- Time since credit inquiry(s)
- Re-establishment of positive
credit history following past
payment problems
Types of Credit
Used
- Number of (presence, prevalence,
and recent information on) various
types of accounts (credit cards,
retail accounts, installment loans,
mortgage, consumer finance accounts,
etc.)
Please note that:
- A score takes into
consideration all these categories
of information, not just one or two.
No one piece of information or
factor alone will determine your
score.
- The importance of any factor
depends on the overall information
in your credit report.
For some people, a given factor may
be more important than for someone
else with a different credit
history. In addition, as the
information in your credit report
changes, so does the importance of
any factor in determining your
score. Thus, it's impossible to say
exactly how important any single
factor is in determining your score
- even the levels of importance
shown here are for the general
population, and will be different
for different credit profiles.
What's important is the mix of
information, which varies from
person to person, and for any one
person over time.
- Your FICO score only looks at
information in your credit report.
However, lenders look at many things
when making a credit decision
including your income, how long you
have worked at your present job and
the kind of credit you are
requesting.
- Your score considers both
positive and negative information in
your credit report.
Late payments will lower your score,
but establishing or re-establishing
a good track record of making
payments on time will raise your
score.
Information obtained
from MyFico - a division of Fair Isaac. |
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