FICO Credit Scores Explained

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fico-credit-scores-explained- picFirst of all, what is FICO?

“FICO” actually stands for the “Fair Isaac Corporation.” It is a public company that provides analytics and decision-making services, including those which determine how credit scoring methodology is interpreted, applied and utilized. You can read our Guide to Credit Scores to learn the nuts and bolts of credit scoring.

What is the impact of a FICO score on my creditworthiness?

The FICO score a consumer receives is used to decide how much credit they can borrow and how much interest they can pay according to a variety of differently weighted factors about their debt, repayment history, credit applications and length of credit history. This will lead to you receiving a number between 350 and 850, referred to as your “credit score.”

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FICO Credit Scores Infographic (scroll down if you want to use it on your website)

How widely utilized is the FICO method?

The FICO credit scoring method is used by 90% of lending decisions, so it is very important that you understand how it works in order to improve your score and credit standing for the future.

How does a FICO score break down?

According to the FICO website, their credit score is made up of the following components and weightings:

  • Payment history = 35%
  • Amounts owed = 30%
  • Length of credit history = 15%
  • New credit = 10%
  • Type of credit used = 10%

What does the FICO score not include?

It is also important to know what FICO doesn’t take into account:

  • Information on race, religion, nationality, sexual orientation or marital status: The U.S. Consumer Credit Protection Act prohibits FICO and other companies from using this information to determine credit status.
  • Age: Other credit scoring companies may use age as a factor, but FICO does not.
  • Salary, occupation, employment history: Although lenders themselves may use this data, FICO doesn’t compute it into the score.
  • Address data: Your ZIP code or areas has no bearing on your FICO score.
  • Interest rates being applied to particular credit accounts: The FICO data sourced regarding your amounts owed and payment history is aggregated only.
  • Data regarding child or family support obligations
  • Data regarding rental agreements
  • Whether or not you receive any credit counseling.
  • This is because FICO produces a high number of different “generations” of a general risk credit scores and various specialist scores for 5 industries – mortgage, auto, credit card, installment loan and personal finance.

What are the categories of FICO scores?

The 5 categories are:

1)      General Risk: This is a general score for all purpose.
2)      Auto Score: This is used for determining auto loan interest rates.
3)      Credit Card Score: This is used for calculating credit card interest rates.
4)      Installment Loan Score: This is used for applying interest rates to installment loans
5)      Personal Finance Score: This is a score for personal loans and other kinds of personal finance.

How may FICO credit scores are there?

Many consumers are not aware that there are several generations of FICO scoring methods used, since the company’s incarnation in 1989, but there are anything up to 53 different combinations of categories and generations of scores.

How is this possible?

It may seem confusing, but as FICO creates the formula alone, it is up to the credit reporting bureaus – Experian, Equifax and TransUnion to use their own metrics to calculate the numbers and apply their data to determine credit scores.

Know Your Score, Take Charge of Your Credit

Make sure that you know what your FICO score means for you. If you have a lower score than you anticipated, PersonalLoansForBadCredit.org can connect you to reputable bad credit lenders who can offer competitive loans even with bad credit.

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