by
Carl Hampton
08/04/2006
A FICO score is a credit score developed by
Fair Isaac & Co. Credit scoring is a
method of determining the likelihood that
credit users will pay their bills. Fair,
Isaac began its pioneering work with credit
scoring in the late 1950s and, since then,
scoring has become widely accepted by
lenders as a reliable means of credit
evaluation. A credit score attempts to
condense a borrower's 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.
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 thousands, even
millions, of people have used credit.
Score-model developers find predictive
factors in the data that have proven to
indicate future credit performance. Models
can be developed from different sources of
data. Credit-bureau models are developed
from information in consumer credit-bureau
reports.
Credit scores analyze a borrower's credit
history considering numerous factors such
as:
--Late payments
--The amount of time credit has been
established
--The amount of credit used versus the
amount of credit available
--Length of time at present residence
--Employment history
--Negative credit information such as
bankruptcies, charge-offs, collections, etc.
There are really three FICO scores computed
by data provided by each of the three
bureaus--Experian, Trans Union and Equifax.
Some lenders use one of these three scores,
while other lenders may use the middle
score.
Frequently Asked Questions (FAQs)
How can I increase my score? While it is
difficult to increase your score over the
short run, here are some tips to increase
your score over a period of time.
--Pay your bills on time. Late payments and
collections can have a serious impact on
your score.
--Do not apply for credit frequently. Having
a large number of inquiries on your credit
report can worsen your score.
--Reduce your credit-card balances. If you
are "maxed" out on your credit
cards, this will affect your credit score
negatively.
--If you have limited credit, obtain
additional credit. Not having sufficient
credit can negatively impact your score.
What if there is an error on my credit
report? If you see an error on your report,
report it to the credit bureau. The three
major bureaus in the U.S., Equifax
(1-800-685-1111), Trans Union
(1-800-916-8800) and Experian
(1-888-397-3742) all have procedures for
correcting information promptly.
Alternatively, your mortgage company may
help you correct this problem as well.
