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What is a FICO Score?

FICO stands for Fair Isaac & Company. This is a for profit company that provides consulting services and enterprise decision management systems. They developed the FICO score (there are multiple models), which are a measure of credit risk, and are the most used credit scores in the world.

There are multiple “credit scores” on the market so pay close attention to what you have or are receiving. In most lending situations for mortgages, bank loans, etc, some form of a  FICO score model is used.

How is a score calculated?

How any score is actually calculated is proprietary information. It depends on many factors that come from your credit file. You can receive a different score for each credit file, as each file can contain different information.

According to myFICO.com, a FICO score is based upon several categories of information.

Take note of what weighs the most in this scenario. This is the case with most score models. Do not be deceived by others. Your pay history and total amount owed (specifically on revolving credit lines) are the most crucial elements of your credit profile:

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 FICO 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 FICO 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 FICO credit score.
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