ABOUT FICO SCORING

FICO scoring is a method of determining the likelihood that a credit user will pay their bills developed by Fair Isaac & Co in the late 1950's. Since then, Scoring has become the primary method creditors use in determining whether or not to approve loans or grant credit. A FICO credit score attempts to condense the consumers credit history into one single number. The exact science of the computations is unknown. The Federal Trade Commission has ruled this as acceptable.

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how millions of people have used credit. Credit scores analyze a borrowers credit history by considering factors such as late payments, length of time credit has been establshed, amount of credit available in relation to amount used, employment history and length of time at current address.

Currently, there are three FICO scoring companies. Fair Isaac, Beacon, and Empirica. These companies score Experian, Equifax and Transunion respectively. A creditor may use one of the three to determine your credit worthiness, or she may use the middle score. The median is the more common approach.

FICO scores are not the same as the scores offered by the individual reporting companies. Several years ago the Federal Trade Commission ruled that credit reporting agencies were required to provide consumers with "credit scores." However, by that time FICO scoring had already established itself among employers and creditors. As noted, the exact formula for scoring is entirely unknown, so the approach taken by the bureaus is dramatically different from the approach that counts. Thus, it is unhelpful to purchase your score from any other instituation than MyFico.com.

Your FICO score is all that matters. Years ago, in a more personable world, creditors could sit down with loan applicants and disuss their credit history. Indiscretions, past problems, or inaccuracies were explained away with smiles and apologies. Today, no such luxury exists. Your approval rides on one of three numbers, provided by one of three companies. Let us get that number to where it needs to be.

Copyright 2007-2008 © The Kelly Group.  All Rights Reserved.