Fair Isaac

The Fair Isaac Corporation

The Fair Isaac Corporation was founded in 1956. The Company was named after Bill Fair and Earl Isaac. While the pair provides consulting services for many companies worldwide, they are best known for the FICO scoring system, which is used by credit granting companies.

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FICO: Your Credit Score

The letters in FICO stand for Fair Isaac Corporation. FICO is the credit scoring system that assigns a credit score to individuals and businesses. A credit score helps credit granting companies determine whether the risk is low enough for them to grant credit. The higher a credit score is, the lower the risk and the better chance that credit will be granted. The inverse is true with low credit scores.

The actual weighted items for the Fair Isaac scoring system are as follows:

• An individuals or businesses payment history- 35 percent
  • The payment history for most accounts is seven years. Therefore, if you pay off an account but it was paid late, it will reflect adversely on your credit score.
• Total amounts owed – 30 percent
  • The total amount owed represents your total indebtedness. This amount shouldn't be more than a third of your annual income. The less you owe, the higher your credit score.
• Length of credit history – 15 percent
  • You may have excellent credit, meaning you pay your accounts on time each month. Unfortunately, if you haven't had your accounts for at least a year, there isn't much to score you with. Your on-time payment history for an entire year will help you get a great credit score. Think of your credit history as your payment history. You won't have a payment history unless you use an account and make monthly payments.
• Total number of new accounts – 10 percent
  • Beware of opening too many accounts--even if you don't use them. Resist the urge to reply to all of those unsolicited credit applications in the mail. If you are just establishing credit, too many accounts will send up a red flag to credit granting companies. A lot of open lines of credit can put you at risk of not being able to pay your bills on time if you were to charge them all to the limit. Limit your revolving credit accounts to five or less until you have a long-running credit history.
• The types of accounts reported – 10 percent
  • A variety of accounts can help you get a higher Fair Isaac score. A mix of student loans, car loans, home mortgages and a few revolving credit accounts helps you get a higher credit score than someone who has only revolving credit accounts

Credit Score Ranges

When a credit lending institution gets a copy of your credit score, they will see a three-digit number. That number determines whether they will extend credit to you. Since each credit lending institution is different, and they don't disclose their criteria, you may or may not receive an offer of credit. Fair Isaac score ranges are as follows:

• 340 to 499 - very low score
• 500 to 549 - low score
• 550 to 599 - better score
• 600 to 699 - average
• 700 to 749 - good score
• 750 to 799 - great score
• 800 to 850 – excellent score

Credit Score Companies

In the United States there are three recognized credit-scoring companies. These companies compile your credit information and provide your credit score to businesses that request them. Credit granting institutions pay for these credit reports.

• TransUnion
• Experian
• Equifax

If you have been denied credit by one of these agencies, the company that declined to give you credit will send you a letter stating this. With this letter you can submit a request to the credit scoring company and obtain a free copy of your credit report. You may also obtain one free credit report a year from each of the three credit score companies.

Conclusion

Your credit score tells a lot about you, so be sure to protect it. The credit score you have can affect your future employment, insurance rates, and mortgage rates. The higher your score is, the lower your interest rates will be. Remember to use caution when accepting lines of credit that you don't need, as it can adversely affect your credit score.

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