The term “FICO” is actually an acronym, which stands for: Fair Isaac Corporation. Depending upon a variety of factors that will be explained in future lessons, a score is concluded. This score tells potential creditors, employers, etc. about the likelihood of you repaying a debt, and your worthiness of being extended credit to. FICO scores use information in your credit report to help determine your likelihood of paying bills on time. Lenders often use FICO scores to help decide if they will extend credit to consumers.
A FICO score, is a credit score, and these are calculated using different models, used to predict certain types of risk. Because different FICO scores and other credit scores were created using different scoring models, the scores may not be identical. Different credit score models have different formulas and calculations (often called algorithms) that use data differently to help predict a person’s likelihood to repay bills on time.
Although FICO has many different scoring models, it uses relative percentage weights to help determine how much impact certain factors will have in helping determine a FICO credit score. The main categories are as the following breakdown:
- Payment history 35%
- Amount of credit 30%
- Credit history length 15%
- Amount of new credit 10%
- Credit mix 10%
There are three major credit bureaus: Transunion, Equifax, and Experian. FICO scores are available from each of the three major credit bureaus, based on information contained in consumers’ credit reports. Because there are different FICO scoring models and different credit bureaus, consumer credit scores may be different depending on which bureau’s and which scoring model is used.