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.
