Fair Isaac Credit Score (FICO) Guide And Faq
So what exactly is a Fair Isaac Credit Score? It is the aim of this guide to help you better understand the score and its impact on you. The Fair Isaac Corporation is the developer of the most used credit score system in the world, the Fair Isaac Credit Score, often abbreviated to just FICO score. Founded in 1956 by engineer Bill Fair and mathematician Earl Isaac, the company's famous credit scoring system is widely known by those who monitor their credit score. FICO scores are available through all of the major credit reporting agencies.
Your FICO score ranges from 300 and 850 depending on your credit history. Statistics show that sixty percent of FICO scores fall into the 650 to 799 range. The score is adjusted based on what type of loan you are taking out: mortgage, auto loan, or consumer credit (credit card). Your FICO score may be substantially better for credit card applications than for home mortgage for instance. It is not unusual for these scores to differ by as much as 50 points for the same borrower.
Fair Isaac Credit Scores are computed on five main components, each weighted differently. Thirty-five percent of your FICO score is made up of the punctuality of past payments. Thirty percent is the amount of debt you currently have. Fifteen percent is the length of your credit history. Lastly, the types of credit you currently have and amount of credit obtained recently each make up ten percent respectively.
Some items in your credit report will of course have far reaching impact beyond the percentage used in the Fair Isaac Credit Score formula. The most obvious of which is a past bankruptcy. Clearly this significantly lowers your FICO score. Bankruptcy is by no means the only major pitfall that can damage your FICO score. Foreclosures and judgments will as well and also do not fall evenly into the simple pie chart described above. The exact methodology of the FICO score is a closely guarded secret. A recent loan for a $300,000 would likely also hinder your ability to borrow more money, depending on your income of course. More information on your Fair Isaac Credit Score can be found on our site in the credit score FAQ as well as our guides and explanation on credit score simulators and rankings. Knowing your FICO score can be a powerful tool in managing your finances and in determining what kinds of loans and mortgages you can potentially take out.
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