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Fair Isaac & Co. (FICO)
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Posted On: Monday November 9th, 2009 at 10:45am EST
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What is the FICO Score and what factors are considered?
A FICO score is a generic term for a credit bureau score and specifically refers to the score derived from the FICO statistical model. A credit bureau score measures the relative degree of risk a potential borrower represents to the lender or investor. Each of the three credit bureaus have their own method, or statistical model, for calculating scores. The bureaus rely exclusively on their own data for calculating scores. The credit bureaus are:
Fair, Isaac & Co. (FICO) began its pioneering work with credit scoring in the late 1950s. 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.
FICO scores vary from approximately 375 to 900 points. Higher scores are better.To get the best interest rates, you will generally need to score 680 or higher. If your score is at least 680, you are considered to have 'A' credit. If your score is below 620, you will generally pay a higher rate on your mortgage, and your credit is considered "sub prime." Depending on your score and credit, you may be considered to be a 'B', 'C', or 'D' credit borrower. If your score is between 620 and 680, based upon factors such as income, assets, etc., the lender may decide into which credit category you fall.
Below are the weights and factors assigned to different credit history factors used for the FICO score:
| Item |
Summary |
% of Weight |
| Payment History |
Determined by the payment history on your credit card accounts, from Visa cards to department store and loans. The model assigns greater weight to recent missed payments than late payments years ago. |
35% |
| Outstanding Credit |
Based on the amounts you owe creditors. This includes the total of what you owe on all your accounts and whether you carry an unpaid balance on certain accounts like credit cards. |
30% |
| Length of Time |
Attributed to the length of time the applicant has been a credit user. The longer, the better, assuming you pay on time. |
15% |
| New Credit Loads |
Based on whether you appear to be loading on new credit. In other words, have you been applying for and receiving new loans in recent months. High activity in this category will lower the score. |
10% |
| Mixed Credit Use |
Governed by the types and "mix" of your credit use. |
10% |
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