Your Credit Score – What It Is

When anyone applies for credit for a credit ( i.e. credit card, a car loan, or a mortgage) lenders want to know what risk they'd take by loaning money to you. Several years ago some Ph.D.s at a company called Fair Isaac developed a system to "predict" who might go into credit failure from data collecting on individual's credit history. Most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac and Company. FICO scores are provided to lenders by the major credit reporting agencies. This system has gained more popularity in recent years and now each of the three main credit bureaus licenses Fair Isaac's system for generating credit scores based on an individual's credit report.

FICO scores are the credit scores most lenders use to determine your credit risk. You have three FICO scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you and is used to create a credit report. As this information changes, your credit scores tend to change as well. Your 3 FICO scores affect both how much and what loan terms (interest rate, etc.) lenders may offer you.

FICO scores are based on 22 pieces of data collected from the three major credit bureaus, Equifax, Experian and TransUnion). The lowest possible score is 300, while the highest is 850.

For your three FICO scores to be calculated, each of your three credit reports must contain at least one account which has been open for at least six months. In addition, each report must contain at least one account that has been updated in the past six months. This ensures that there is enough information – and enough recent information – in your report on which to base a FICO score on each report.

The higher the score, the lower the risk. But no score says whether a specific individual will be a “good” or “bad” customer. And while many lenders use FICO scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product.

Other Names for FICO Scores

FICO scores have different names at each of the credit reporting agencies. All of these scores, however, are developed using the same methods by Fair Isaac, and have been rigorously tested to ensure they provide the most accurate picture of credit risk possible using credit report data.

·         Equifax Score – Is called BEACON

·         Experian Score – Is called Fair Isaac Risk Model

·         TransUnion Score – Is called EMPIRICA

Most lenders use their own scores, which often will include the FICO score as well as other information about you.

FICO scores are not the only credit bureau scores. Your score may be different at each of the three credit reporting agencies, and probably is since each does it’s own interpretation.

As your data changes at each credit reporting agency, so will any new score based on your credit report. So your FICO score from a month ago is probably not the same score a lender would get from the same credit reporting agency today. 

Go to Next Page - Credit Reports - How To Read Them

Table of Contents

Introduction • Credit Bureaus–What You Need To Know 
Your Credit Score–What It Is • Credit Reports–How To Read Them
Traditional Methods–Clean It Up • Quick Fixes – How You Can Get Faster Results
Monitoring Services–Are They Worth It • The Future–You Can Establish New Credit
Sample Disputer Letter • Other Resources & Sponsors • Supplement Reading • Summary