FICO Credit Score

If you have ever applied for a credit card or loan, then chances are you have heard of a “FICO Credit Score.” If you are not entirely sure what a FICO credit score is, or are at least unsure of what your three-digit score means and how it is calculated, then you are not alone!

“FICO” stands for the Fair Isaac Corporation. Fair Isaac, Inc., first developed the algorithm that is used to calculate your FICO credit score in the late 1950s – credit scores did not become a widely used measure of credit-worthiness until the late 1970s, and were primarily used as a tool for mortgage lenders. The algorithm for calculating your FICO credit score is licensed by the Fair Isaac Corporation to each of the three major credit reporting agencies: Equifax, TransUnion and Experian.

Here is the formula used by the Fair Isaac Corporation in figuring your FICO credit score (the percentages are approximated):

• 35% : Late Payments, Bankruptcies, Collections, Judgments
• 30%: Current Debts and Credit Balances
• 15%: How long accounts have been open and established
• 10%: Type of credit (credit cards vs. finance company loan, etc.)
• 10%: Applications for new credit or Inquiries

All of your financial information is used together to determine your credit score. A low FICO score might get you credit, but you will pay thousands more in interest fees than someone with a good FICO score would. Every lender evaluates your score slightly differently, but there is widespread agreement that a score of 680 or better is very good, a score that is in the mid-700s or higher is seen as excellent credit, and any score below 600 will likely result in higher interest rates and less favorable loan terms.

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