FICO Scores - What Counts

FICO scores are credit scores that are calculated by the Fair Issac Corporation using their own proprietary calculation methods. These calculations are very complex and are accomplished using a consumer's financial data compiled by the three major Credit Reporting Agencies - Transunion, Equifax, and Experian. It is for this reason that a consumer has 3 FICO scores - one based on each CRA's data.

In the past, consumers could purchase their 3 FICO scores from myfico.com. This is no longer the case. As of February 14, 2009, the FICO score calculated using Experian's data is no longer available to consumers. It is, however, available to lenders. Learn more about this change and what it means to credit repair efforts.

FICO scores are not to be confused with credit scores supplied by the 3 CRAs. Each CRA uses its own software and methods to calculate a consumer's credit score. These scores are not FICO scores. FICO uses the information provided to them by the 3 CRAs; however, they use their own software and methods to calculate genuine FICO scores.

FICO scores are the most widely used scoring method employed by lenders to ascertain the creditworthiness of those applying for credit of all sorts. It is for this reason that understanding FICO scores and how they are calculated is the single most important credit score information a consumer can have. This is particularly true for those consumers considering credit repair services or aiming to enhance existing scores.

The information below offers general information about how Fair Issac Corporation weighs a consumer's financial details. It is important to note that depending on what kind of credit a consumer is applying for, different factors will weigh more heavily than others. The lender considering you for a mortgage may be interested in different information than a lender considering you for an automobile loan.

The general categories used by Fair Issac Corporation are not weighted the same. Every consumer's credit report contains different information, and any detail can modify the weight placed on a piece of information in determining a FICO score. For this reason, one particular credit detail on one consumer's report can impact that individual's FICO score very differently than it might for a different individual with a different credit profile. In addition, a person's FICO score will change as any detail in their credit profile changes.

These are some of the reasons why a general understanding of what information is valued in the calculation of FICO scores can help guide the consumer, as no one category should be considered more or less important than another. Instead, a consumer should strive to perform well in every category, and if their credit profile is lacking in a particular category, concentrate on fixing that category first.

FICO Categories

FICO uses five general categories including; payment history, amounts owed, length of credit history, new credit, and types of credit used. These categories are briefly described below.

Payment History

This category includes account payment information on accounts including credit cards, mortgages, loans, retail accounts, and finance company accounts.

Adverse information, such as bankruptcies and liens, collection items, and past due accounts.

The extent of adverse information, such as the length of past due accounts.

The amounts involved in past due accounts and collection items.

How recent any past due or delinquent accounts are.

The number of past due items and the number of accounts paid to as agreed to.

Amounts Owed

The amounts owed on accounts, with special attention given to certain types of accounts.

The number of accounts with outstanding balances.

The proportion of credit balances to credit limits.

The proportion of amounts owing on installment loan amounts.

Length of Credit History

This category takes into account the amount of time since specific types of accounts were opened, as well as the amount of time since recent activity took place on these accounts.

New Credit

The number of accounts recently opened and the type of these newly opened accounts.

Number of recent credit inquiries.

The amount of time since these accounts were opened and the amount of time elapsed since recent inquiries.

The effectiveness of reestablishing good credit after past credit payment difficulties.

Types of Credit

The types of credit accounts open and how these accounts are managed and used, whether they are loans, credit cards, mortgages, etc.

Consumers should be aware that FICO scores are typically only one factor that a lender will use when making decisions about a client's creditworthiness. FICO scores do not take into account age, salary, employer, geographical place of residence, marital status and a number of other details that lenders may be interested in. The Fair Credit Reporting Act doesn't allow FICO scores or other credit scores to reflect these types of information. This is why a consumer, when trying to obtain a mortgage from a bank or other lending institution, will be asked for information about salary, employer, etc.

Do not underestimate the importance of knowing what your FICO scores are or understanding how to try to raise them. High credit scores mean that you can borrow money at a more favorable rate, potentially saving you thousands of dollars over the long term. It is never too late to begin reestablishing positive credit by concentrating on making payments in a timely manner, only applying for credit accounts that are needed, and so on. Credit repair takes time and effort, and understanding the best methods to raise credit scores, especially FICO scores, is the first step.