Fico Credit Score

The Fair Issac Company developed a risk analysis methodology back in the 1950s. This system was created to judge the amount of risk involved of granting credit based on the history of any individual. The system determines a numeric value of this risk and became known as the Fico Credit Score.

The logic behind this risk analysis is that certain aspects of an individual's past performance on credit transactions will dictate their future reliability. Most of the lenders and credit bureaus use some or all of the Fair Issac methods to score individuals applying for credit.

The Fico credit score is determined by multiple factors of an individuals credit history that is collected by the credit bureaus. The three major credit bureaus use this analysis method in determining a Fico Credit score. Each credit bureau or lender might add their own proprietary methods to adapt the base Fair Issac methods to their particular market.

The basic factors are as follows:

The Fico Credit score range is between 300 and 900, although many lenders will shorten that to 400 to 800. The lower your score, the greater the risk. The amount of interest, down payment (or equity) required, and percentage of income are based on your Fico Credit score. If you have a reasonably high score, say 740, you would be charged less interest and require less of a down payment verses someone with a 620 score.

Due to the latest financial crises with the subprime debacle (subprime means that people with a low credit score were granted credit even though they had a low score), the range of acceptable credit score has risen. Prior to late 2008, if you had a Fico Credit score of 620, you were offered the credit. Now many lenders are requiring a score of 720 or higher to qualify for the same type of loan.

Click on this link to find out more about the Fico Score Range. Your credit score can also be used by insurance companies, prospective employers, and landlords to determine rates or acceptance. Credit scores can have a huge impact on what insurance premium you pay, whether you get that job, or can rent an apartment or lease a home. 

The three major credit bureas, Experian, Trans Union, and Equifax all use information in your credit history to determine your Fico Credit score. Other important information is recorded too. Here's a brief list of some of the items:

• Identity such as your name, address, SSAN, spouse, and date of birth.
  
• Payment history on how timely you made payments to creditors.
  
• Public records like arrests, indictments, convictions, lawsuits, tax liens, marriage, bankruptcies, and court judgments.
  
• Amount of current debt.
  
• Information about current and past employment, position, and income.
  
• Number of dependents, previous addresses and employment.

It is up to the individual to maintain accurate information stored in their credit history at all three credit bureaus. The lenders or creditors report any activity, good or bad, to one or more of the credit bureaus. If there is inaccurate information, it can impact your credit score. So it's very important to check your credit report at each individual credit bureau.

Items can be filed incorrectly under a person with similar name, inaccurate information on transactions, or no information filed at all. Some lenders or creditors might report to one credit bureau and not another. So your credit score can be different from each credit bureau.

Your Fico Credit score may impact many different facets of your life. From employment to the cost of credit, the impact can be huge. Everyone should check their credit report at least yearly and insure that the information is accurate and up to date.