What is a FICO® Score?

The FICO score is by far the most commonly used credit score by lenders. It was developed by Fair Isaac & Co., and is available to consumers at Fair Isaac's consumer Web site, myFico, as well as Equifax, one of the three credit bureaus.

For years, credit bureaus kept scores secret from consumers because Fair, Isaac didn't want to open the door to competitors, and it didn't want consumers to figure out how to hack higher scores. But when California mandated that credit bureaus disclose scores to Californians, the credit bureaus embraced the concept of selling credit scores to consumers for a fee.

Lenders use the scores to decide whether to lend money and on what terms. A FICO score can range from 300 to 850. The very best rates go to people with scores above 720, but a score of 700 is considered good. A mortgage broker, for example, might turn down anyone with a score below 600, lend money at a high interest rate to people scoring between 601 and 700, and at lower rates for applicants scoring higher.

FICO score is based on your credit report data

A FICO score is based on the information in your credit report. Your FICO score considers both positive and negative information in your credit report. Late payments will lower your score, but having a good record of making payments on time will raise your score. The actual scoring process is proprietary.

Your score may be different at each of the three main credit bureaus. The FICO score from each credit reporting agency considers only the data in your credit report at that agency. If your current scores from the three credit reporting agencies are different, it's probably because the information those agencies have on you differs.

How Your FICO score is determined

Listed below are the five main categories of information on a credit report that Fair, Isaac scores evaluate, along with their general level of importance.

• Payment History (35 percent): Having a long history making of payments on time and no missed payments on all credit accounts is one of the most important items lenders look for.
  
  FICO considers whether you have accounts in collection; whether you have any delinquencies,and how frequent and recent they are; and whether you make your payments on time. How much impact each item has on your score depends on what other information is in the report. For instance,one late payment may not affect your score significantly if the rest of your history is good,because the model looks at credit patterns,not isolated credit mistakes. In addition,FICO gives you points for maintaining a good payment relationship.
  
  

• Current level of indebtedness (30 percent ): This measures the amount you owe relative to the total amount of credit available. Someone closer to maxing out all their credit limits is deemed to be a higher risk of late payments in the future and this can lower their credit score.
  
  FICO considers the number of balances recently reported, the average balance across all trade lines, and the relationship between the total balance and total credit limit. FICO considers your current level of borrowing and whether you are close to or over your limit. Carrying too much credit is held against you even if you do not have balances on those cards.
  
  

• Length of Credit History (15 percent): In general, a credit report containing a list of accounts opened for a long time will help your credit score. The score considers your oldest account and the average age of all accounts.
  
  FICO looks at how long you have had your account, the total number of inquiries and new accounts opened, the number of inquiries and new accounts opened in the last year,and the amount of time since the most recent inquiry. Banks,department stores,employers or landlords make "inquiries" on your credit report every time you apply for credit or a loan at that institution. The FICO scoring model considers inquiries because statistics show that those anticipating financial troubles try to increase the number of credit lines they have vailable. The FICO model has taken into account certain lender practices that normally would negatively affect your credit report. For instance,if you were interested in buying a car and the dealer agreed to finance you,the dealer may run credit inquiries on various lenders,which would then show up as numerous inquiries on your credit report.
  
  

• New Credit (10 percent): The number of times you have applied for credit in the recent past.
  
  Opening several new credit accounts in a short period of time can lower your credit score. Also multiple credit report inquiries can represent a greater risk, but this does NOT include any requests made by you, an employer or by a lender who does so when sending you an unsolicited, "pre-approved" credit offer. Also, to compensate for rate shopping, the score counts multiple inquiries in any 14-day period as just one inquiry.
  
  

• Types of Credit in Use (10 percent ): Your mix of credit cards, retail accounts, finance company loans and mortgage loans is considered.
  
  FICO looks at the diversity of credit you use, whether you use bankcard, travel and entertainment cards, department store cards, personal finance company references,and/or installment loans.
  

Information FICO Does Not Consider:

FICO does not consider your race, color, religion, national origin, sex, sexual orientation, marital status or age.

The Reason Codes

When a lender receives your credit score, it includes "score reason codes" to explain the top reasons your score was not higher. These codes are the vital information that can give you an idea of how you should start improving your score, such as reducing debt or being more diligent about making payments on time.

Lenders are not required to tell you your credit score, but if your score is low and you are turned down for a loan, the lender must give you the reasons for your low score. Your score is accompanied by a maximum of four "Reason Codes" that explain why your score wasn't higher, listed in order of impact on the score.

FICO reason codes show how many aspects of your credit report are used in a FICO score. Your four reason codes would be from this list:

• Amount owed on accounts is too high;
  

• Delinquency on accounts;
  

• Too few bank revolving accounts;
  

• Too many bank or national revolving accounts;
  

• Too many accounts with balances;
  

• Consumer finance accounts;
  

• Account payment history is too new to rate;
  

• Too many inquiries in last 12 months;
  

• Too many accounts opened in last 12 months;
  

• Proportion of balances to credit limits is too high;
  

• Amount owed on revolving accounts is too high;
  

• Length of revolving credit history is too short;
  

• Time since delinquent is too recent or unknown;
  

• Length of credit history is too short;
  

• Lack of recent bank revolving account information;
  

• No recent non-mortgage balance information;
  

• Number of accounts with delinquency;
  

• Too few accounts currently paid as agreed;
  

• Time since derogatory public record or collection;
  

• Amount past due on accounts;
  

• Serious delinquency,derogatory public record or collection;
  

• Too many bank or national revolving accounts with balances;
  

• No recent revolving balances;
  

• Proportion of loan balances to loan amounts is too high;
  

• Lack of recent installment loan information;
  

• Date of last inquiry too recent;
  

• Time since last account opening is too short;
  

• Number of revolving accounts;
  

• Number of bank revolving or revolving accounts;
  

• Number of established accounts;
  

• No recent bankcard balances;
  

• Too few accounts with recent payment information.

Check Your FICO Score

When you order your own personal credit report, you can see the same credit history a lender sees, but a score can tell you more. It tells you how the lender is likely to evaluate your history.

For years now, customers have been barred from ever seeing their FICO scores and the method whereby their FICO scores were obtained. But after many years of pressure by consumers and legislators, now you will not only be able to obtain your FICO score from your loan officer, but you will also be able to go on-line and find out the specific factors that are affecting your score. You can order your FICO Score by clicking HERE.