What is a FICO Score?
To answer this question, let’s start off by revealing what the acronym stands for. FICO stands for Fair Isaac Corporation. Fair Isaac was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac. They developed the FICO scores, a measure of credit risk, that are the most used credit scores in the world. In fact, according to MyFICO.com, 90% of the largest U.S. banks use FICO scores.
FICO scores are available through all of the major credit bureaus in the United States including Equifax, Experian, and TransUnion. You can also get your scores directly at MyFICO.com. It’s important to note that the credit bureaus and many other credit monitoring companies also offer you their version of your credit score based on information from your credit reports, but these scores are NOT the same as your FICO scores and usually not the same scores your lenders will use. These scores are what are commonly known as FAKO scores and are more often than not, way off from your actual FICO score.
FICO scores can range from 300 to 850, but the majority of scores usually fall within the 600s and 700s. MyFICO reports that they are the only site offering all 3 of your FICO scores and the median FICO score in the U.S. is 723.
The exact scoring formula of FICO is kept very secretive, but they do tell us this:
Credit scores are calculated based on your rating in five general categories:
35% – Payment history
30% – Amounts owed
15% – Length of credit history
10% – New credit
10% – Types of credit used
Higher scores mean lower interest rates. If you’ve been declined for a loan, chances are lender has made their decision based on your credit scores. You can increase your FICO scores by removing bad credit and adding good credit to your credit. Learn how you can remove late payments, collections, charge-offs, bankruptcies, foreclosures, repossessions, judgments, and tax liens on your credit report to improve your chances at getting a loan.