Fico Credit Scoring

Who Are They, And How Can They Help You?

So what's FICO?

Consumer lenders and bankers most commonly use FICO to score credit. Credit scoring is how lenders estimate the likelihood that credit users will pay their bills, and FICO is the most commonly used credit score (it takes its name as an acronym from the Fair Isaac Corporation), and FICO is a mathematical formula that seeks to indicate the likelihood of a borrower falling delinquent in the next 24 months. FICO scores generally range between 300 and 850. Any score that tops 750 is considered a good credit risk, while a score below 620 is considered risky. Each lender decides for their own institution whether or not to lend to people with scores between thee two numbers.

Where does FICO get its information?

FICO develops the information from which it calculates the score from your credit report, which is compiled by three major credit reporting agencies (Experian, Trans Union, and Equifax). A little over a third-35% to be precise-of your credit score derives from your payment history. Another third-30% to be precise-is calculated from the amount of your total outstanding debt. Within this, revolving accounts weight more than installment loans. Another portion-15% to be precise-depends on the length of your credit history; and smaller portions-10% each to be precise-describe the percentage of new credit, and the mix among forms of credit in your 'portfolio.'

Know your FICO score, and know that you can affect your FICO score.

These scores aren't just for bankers and financers; thanks to the Federal government, you have the right to know your score as well. The Fair and Accurate Credit Transactions Act (FACT Act) entitles each legal US resident to one free copy of their own credit report, from each credit reporting agency, once every twelve months. Note, however, that the free report doesn't contain the credit score, but that you will be offered an opportunity to purchase the credit score for a nominal charge at the time of access. FICO can help you, because a strong FICO score will make it easier for you to get credit. The good news is that you can increase your FICO score over the long run. What can you do? Pay your bills on time. Don't apply for credit frequently; inquiries about your credit report bring your score down. Reduce your credit card balances; 'maxed' out cards will bring your score down as well. But don't keep yourself outside their system! Insufficient credit will bring your score down, as well.