The FICO Score For Credit

A stack of credit reports on a desk
Credit History & Credit Scores
Part 1 Credit Reports And Credit Scores
Part 2 The FICO Score For Credit
Part 3 How To Improve Your Credit Score
Part 4 Credit Checks For Payday Loans

FICO scores which are so dominant in the credit scoring industry were developed because credit agencies did not have a satisfactory way of interpreting and comparing all the information that they held. In this article we talk about:

  • The origins of the FICO score
  • The impact of FICO
  • The effects of credit reports
  • The information within credit reports

How did the FICO score originate?

A tech business called Fair, Issac & Company developed an algorithm for credit scores that would go on to create an industry wide standard for credit scoring. Released onto the market in 1989, the algorithm has not changed much and is still the major influence in credit scoring on the 21st century. Using FICO it became possible for lenders to arrive at an informed decision about the risks associated with anyone who wanted to borrow money.

The impact of FICO

Credit scores are not just a way for lenders to assess risks but also have an impact on society in other ways. Those who are poorer have to pay substantially more for credit than those who are rated as excellent. This means low waged families paying higher interest rates and having to put down larger deposits for purchases.

You should check your own credit score to ensure there are no errors

Of course, FICO scores also have a positive side and the objectivity of the scoring system has allowed many ordinary Americans to buy goods that have enhanced their lifestyle. Credit reports and scores are used in every walk of life and will often determine how much you pay for essentials like insurance or a home rental deposit. They are not just about borrowing money.

The effect of credit reports

As reports have an impact on applications for credit cards, home loan approvals and even whether you will be considered suitable to rent an apartment, it is important to have some understanding of what they contain.

A man analyzes his credit score

There is a difference between a credit report and a credit score although many people are unaware of this fact. Knowing what is in a credit report and what it means can help you to identify what financial weaknesses or strengths you have.

Information in credit reports

The list of information contained in a credit report is very comprehensive. It will list the following:

  1. Any companies that have given you a loan
  2. The total amount of every loan you have taken out
  3. How much and how often you have made repayments
  4. Companies that have accessed the report
  5. Your personal address and your employer details
  6. Other details on public record

Credit reports are available to many organizations including banks, insurers, creditors, government agencies, collection agencies, landlords and utility companies. If an organization has a legitimate reason for looking at the credit record it can do so. It is very important to check on your own credit report to ensure that there are no errors that could damage your financial reputation.

The impact of credit scores

A credit score simply gives a potential lender access to a numerical figure that is based on several different pieces of data. The idea behind the score is that it is an objective and dependable method of determining the risk involved in lending.

Credit scores can and do constantly change so your score may go up or down depending on your financial behavior.

Credit scores can and do constantly change so your score may go up or down depending on your financial behavior. Paying bills on time, keeping up with loan repayments and not borrowing too much compared to your income are all simple actions that can help to improve a credit score. Accessing a potential customers credit score is normal practice for credit card companies, automobile dealers, banks and retailers.

About the FICO scoring system

A lender checks and new applicant's FICO score

Ninety nine times out of a hundred, a lender will check your FICO score when you apply for a loan of any kind. The result of the check will affect how much interest rate you are charged and the terms of the loan.

FICO scores are used by credit reference agencies like Equifax, TransUnion, VantageScore and Experian. However, they do not all go on to give credit scores of the same numerical value so one agency may score you differently to another.

With over one hundred factors being influential in credit scores, models by the various agencies can be created for specific industries. But, there are five main factors that are common to credit scores for individuals. Each factor carries a percentage weight to the final score.

Credit History & Credit Scores
Part 1 Credit Reports And Credit Scores
Part 2 The FICO Score For Credit
Part 3 How To Improve Your Credit Score
Part 4 Credit Checks For Payday Loans

About the author

David Warren

David Warren is an expert on personal loans across the United States. His career in banking has helped make David the loans specialist that he is today. He shares his analysis and insight into the personal finance industry on onlinecreditusa.com