Debt Relief Hotline

FICO Score

What is a FICO Score? FICO is the acronym for the most widely used credit scoring model in the United States.  Fair Isaac Corporation is the company that created the FICO Score and this is a product that is sold to banks and other credit agencies to determine the credit worthiness of consumers.  The FICO score is a mathematically formula that pulls information from the consumers credit report and then generates a credit score. 

The FICO score is one of three factors used in the credit decision process made by banks and other lenders of secured and unsecured credit. The other two factors considered are Income and your debt to income ratio. If you have a low FICO score, banks and other lending institutions may deny credit, charge higher annual percentage rates/ interest rates, demand collateral, require a co-signer or require extensive income and asset verification

How is a FICO Score calculated? The FICO scoring model is a patented product that is kept secret by the Fair Isaac corporation.   Fair Isaac has released the following information to help consumers better understand the makeup of their FICO score:

• 35% — punctuality of payment history (only includes payments greater than 30 days delinquent)
• 30% — the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
• 15% — length of credit history (7 year time frame)
• 10% — types of credit used (installment accounts (ex: auto loans), revolving accounts (ex: credit cards), ect...)
• 10% — recent inquires for credit and/or amount of credit obtained.

Who is Fair Isaac? Fair Isaac corporation created the first credit scoring model in 1958 for American Investments and then applied a similar credit scoring system in 1970 for the credit card industry.   The FICO score is generally accepted as the most fair and objective credit scoring tool because it does not consider race, sex or ethnicity.

Other Scoring Models Two other widely used credit scoring models are the Beacon score which is primarily used in the auto industry and Vantage Score which was created in 2006 by the three credit bureaus Experian, Equifax, and TransUnion.