Which Factors Does Fico Use To Calculate Your Score?

In this day in age, where transparency is at a very high level, it may sound very shocking to you, but the formula for the Fico scoring model (a scoring model which is used in 90% of mortgage-lending decisions) is still 100% confidential.

Consumers have very little insight into what factors are used to determine their Fico score. Fico only revealed the general 5 big factors which you can read more about here.

Reasoning Codes

The Fair Credit Report Act (section §605(a)(2)) requires lenders to reveal to their consumers, which factors adversely affected their credit score. Therefore, lenders need to know which factors affect a Fico score in order to be able to explain those factors to their consumers.

For this reason, Fico created a list of reasoning codes that credit issuers send along with a denial letter to their consumers, stating the reasons for which their credit score was adversely affected.

In the past, there were blogs that have put together lists of all the reasoning codes which consumers have received, and based on that, you were able to get an insight into which factors may adversely affect a credit score. Although this did not give you deep insight into the Fico scoring model, it did help you understand, more generally, which factors Fico will include in calculating the scoring model.

For a quick example, let’s use reasoning code number 10: “Ratio of Balances to Limit On Bank Revolving or Other Revolving Accounts Is too High”. This reasoning code tells you that your score was affected by high balances. It does not tell you, though, which ratio is considered a high balance. 20 percent? 50 percent? 100 percent?

The reasoning codes also only reveal factors that adversely affect credit scores, but there are still many factors that may affect your credit score, but possibly in a more minor way (which wouldn’t have been mentioned in a denial letter).

Leaked Document

Recently, a list of the Experian Fico reasoning codes guide was leaked. This document was supposed to be viewed only by credit issuers. It includes a list of all reasoning codes, a full description for all reasoning codes, and it lists actions you can take to improve credit scores. You can view the document here.

At Help Me Build Credit we will spend the next few weeks deeply reviewing this document and report back to our readers what we learned from this document. So stay tuned!