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Shanna 27 February 2008 General Information, Tips and Ideas 602 views 2 Comments Print This Post  Email This Post

A FICO is the most frequently used type of credit score. Credit scores, essentially, are used to summarize your credit risk, based on a snapshot of your credit at a particular point in time.

This helps lenders estimate the risk involved with loaning you money. Your credit score influences the credit that’s available to you and the terms that lenders offer you.

Where did FICO scores come from?
FICO scores were developed by Fair Isaac Corporation. Fair Isaac develops FICO scores based solely on information in consumer credit reports maintained at the credit reporting agencies.

Why are FICO scores valuable?
*Speed: Because FICO scores can be delivered so quickly, lenders are able to get results to potential borrowers faster.

*Objectivity: FICO scores allow lenders to focus on facts relating to credit risk rather than any other subjective opinions based on gender, race, religion, etc.

*Current Info: As you develop good payment patterns, negative performance in the past will fade. FICO scores taken into account both positive and negative factors in your current credit history, creating an up-to-date analysis of your credit risk level.

How quickly can a FICO score change?
Every FICO score is a snapshot of a person’s individual credit record for that moment. It probably won’t change a lot from one month to the next. However, lapses in payments or bankruptcies will lower a score very fast, while improving a credit score can take several months.

What influences a FICO score?
Five main categories are considered in determining someone’s FICO score. No one category alone will create the resulting number, and it’s good to remember that lenders will often consider several other factors, including your occupation and amount of time at it, for example, when evaluating your risk level. 

• 1) Payment History: Taking into account major credit cards, department store credit cards, installment loans and mortgages, the FICO score checks to see if you have a history of paying your bills on time.
• 2) Amounts Owed: The FICO score will consider how much you owe on all your accounts and on different types of accounts, whether you’re showing a balance, and how much of your available credit is being used.
• 3) Length of Credit History: This factor looks at how long you’ve used credit in any capacity, how long individual accounts have been held, and how often you’ve used certain accounts.
• 4) New Credit: New accounts, from new credit cards to new loans, will be considered. The score will also evaluate how often you’ve applied for loans recently and how many agencies/lenders have requested your credit report.
• 5) Types of Credit: Ideally, you want a healthy mix of credit: retail accounts, credit cards, installment loans, mortgages, and finance company accounts.

Related Reading

• How to Improve Your Credit Rating