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HOW TO TACKLE CREDIT CARD DEBT

Everything You Need to Know About a Fico Score

- Mar 5, 2018 credit, Credit Scores4 comments

Updated: 04/30/2019

Who is FICO?

The company FICO  (Fair Isaac and Co.) was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac. Nowadays it is a public company traded on the New York Stock Exchange. FICO is not owned by the US government.

What is a FICO Score?

A FICO score is a three-digit number ranging from 300 to 850. The score determines how odd it is for the person to default on a loan. The higher your score basically says that FICO determined that based on the information on your credit report it is less likely for you to default on a loan. People with an 800 plus are likely to default on a loan 1 in 1,485 while people with below 620 are likely to default on a loan 1 in 15.

How Does FICO Calculate a Score?

FICO collects data from millions of consumers and figures out which consumers that had which factors defaulted on a loan. Based on these facts they will determine, using the information found on your credit report, how likely you are to default on a loan.

For example, let’s say in your history you had two 60 day late payments. FICO will see these late payments on your credit report and compare this information to millions of other consumers that also had two 60 day late payments in the same or similar pattern as you. Then FICO will figure out how many of these consumers ended up defaulting on a loan and based on these numbers they will calculate your credit score. (Of course, FICO will take into consideration a lot of other things. Like how many positive accounts you have etc. I just wanted to give you an easy quick example.)

What Are The Main Factors That FICO Will Look At?

Even though FICO keeps their credit formula highly confidential, these five factors are known to have the biggest impact on your FICO score.

  • Timely Payments= 35% of the FICO score
  • Credit Utilization = 30% of the FICO score
  • Credit History= 15% of the FICO score
  • Credit Mix = 10% of the FICO score
  • New Credit=10% of the FICO score

For more on this please read The Five Most Important Factors In A Fico Score. 

Is FICO The Only Scoring Model?

No. There are other scoring models out there, like Vantage score but FICO is by far the biggest and most widely used. FICO claims that the stunning numbers of over 90% of mortgage-lending decisions are done using the FICO score model!

Does FICO Have Only One Scoring Model?

No again. FICO has several scoring models. (Actually, there are over 100 FICO scoring model versions!!)  FICO 09 is the newest, but all of the scoring models are used daily in lending decisions and every scoring model will result in a slightly different FICO score. (For more on this read: Why Are My Credit Scores Different.)

Does Every Person Have A Fico Score?

No. In order for FICO to be able to calculate a score, you must have an open trade line for at least six months.

I hope to be posting more about the FICO Scoring Model in the future so stay tuned!

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Sam Sam has nearly a decade's worth of experience educating his many readers on everything credit. Sam spends his days checking out credit cards for a full report, from the minute benefit details to the shebang of welcome bonuses. Plus studying the ins and outs of building proper credit. It’s his favorite pastime and he loves sharing it with others.

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4 Comments

  1. The reason for this is that it allows them to recoup the loan, should the borrower default. Title loan lenders also prefer that vehicles not be much older than 10 to 15 years.

    Reply
    • Jannie please be more specific to what your referring too.

      Reply
  2. Thanks for these pointers. One thing I also believe is that often credit cards presenting a 0 interest rate often bait consumers with zero rate of interest, instant authorization and easy on-line balance transfers, nevertheless beware of the real factor that will certainly void your current 0 easy street annual percentage rate and to throw one out into the very poor house quick.

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  1. Leaked Fico Document-Reasoning Codes - Help Me Build Credit - […] transparency is at a very high level, it may sound very shocking to you, but the formula for the Fico…

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