FICO Scores

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:

   (Sorry, I couldn't resist this one)

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.

Checking Your Score                                                                         

You should make sure the information in your credit report is correct. Not only is your credit score based on this information, but lenders also review this information in making credit decisions. Review your credit report from each credit reporting agency at least once a year and especially before making a large purchase, like a house or car. To request a copy, contact the credit reporting agencies directly:

- Equifax: (800) 685-1111, www.equifax.com
- Experian (formerly TRW): (888) 397-3742, www.experian.com
- TransUnion: (800) 888-4213, www.transunion.com

If you find an error, the credit reporting agency must investigate and respond to you within 30 days. If you are in the process of applying for a loan, immediately notify your lender of any incorrect information in your report. Your lender will need to reorder your credit report and score once any changes have been made to your information at the credit reporting agency. Small errors may have little or no effect on your score. If there are significant errors, however, the lender may disregard the score.

   (This little guy has a good attitude towards his scores!)

Note: only the credit reporting agencies have the data from which FICO® scores are calculated. Fair Isaac can't correct data at the credit reporting agencies.

For more Info on Credit Scoring:

Two Excellent Resources on the web for discussions on credit scoring are provided below. Excerpts from both sites were presented above:

www.myfico.com - What's a FICO® score Your FICO® score is the numeric representation of your financial responsibility, based on your credit history. Based on a scale of 300 -850, there are three FICO® scores - one from each national credit bureau. These three FICO® scores are the measure that most lenders will look at when evaluating your credit or loan applications.

www.reficenter.com - The (Re)Finance Center brings together all the resources you need to make educated, well thought-out financing decisions. We strive to bring you the very best from the Internet. Our goal is to provide you with all the free resources you need to make the best possible decisions.

How Do You Measure Up

As a company that helps the nation's largest banks and financial institutions assess credit risk, Fair Isaac is often asked to describe the credit use of a typical consumer. In researching the answer, we discovered that consumers vary immensely in what types of credit they use and how they use it.

By analyzing a large sample of credit file information on people who recently obtained new credit, Fair Isaac was able to survey the panorama of credit activity across the U.S. The following statistics reflect the average use of credit by today's consumers.

Number of Credit Obligations - On average, today's consumer has a total of 11 credit obligations on record at a credit bureau. These include credit cards (such as department store charge cards, gas cards, or bank cards) and installment loans (auto loans, mortgage loans, student loans, etc.). Not included are savings and checking accounts (typically not reported to a credit bureau). Of these 11 credit obligations, 7 are likely to be credit cards and 4 are likely to be installment loans.

Past Payment Performance - On average, today's consumers are paying their bills on time. Fewer than 4 out of 10 have ever been reported as 30 or more days late on a payment. Only 2 out of 10 have ever been 60 or more days overdue on any credit obligation. 85% of all consumers have never had a loan or account that was 90+ days overdue, and less than 10% have ever had a loan or account closed by the lender due to default.

Credit Utilization - About 48% of credit card holders carry a balance of less than $1,000. About 10% are far less conservative in their use of credit cards and have total card balances in excess of $10,000. When we look at the total of all credit obligations combined (except mortgage loans), 54% of consumers carry less than $5,000 of debt. This includes all credit cards, lines of credit, and loans-everything but mortgages. Nearly 30% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus.

Total Available Credit - The typical consumer has access to $12,190 on all credit cards combined. More than half of all people with credit cards are using less than 30% of their total credit card limit. Just over 1 in 8 are using 80% or more of their credit card limit.

Length of Credit History - The average consumer's oldest obligation is 13 years old, indicating that he or she has been managing credit for some time. In fact, we found that 1 out of 5 consumers who recently applied for credit, had credit histories of 20 years or longer. Only 1 in 20 consumers had credit histories shorter than 2 years.

Inquiries - When someone applies for a loan or a new credit card account - in short, any time one applies for credit and a lender requests a copy of the credit report - this request is noted as an "inquiry" in the applicant's credit file. The average consumer has had only one inquiry on his or her accounts within the past year. Fewer than 7% had four or more inquiries resulting from a search for new credit.

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