subject: What Is FICO and How Do I Fix My Credit Report? [print this page] In order to improve your credit scores which make up your credit reports it is important to understand the FICO business and scoring model.
FICO stands for Fair, Isaac and Company and was founded in 1956 by Bill Fair an engineer and Earl Isaac a mathematician. In 1958, they began selling the first credit scoring system these systems were used to help companies evaluate credit worthiness and they continued producing and selling these systems. In 1987, the company went public and created a new predictive general purpose credit scoring model affectionately known as the FICO score. This score was originally named the Beacon score and was used to determine which borrowers were most likely to default on a loan. In 2003, the companies name was changed to the Fair Isaac Corporation.
The general purpose FICO scoring model was adopted by all three major credit bureaus Equifax, Transunion, and Experian. The FICO score ranges between a low of 300 and a high of 850. The higher the score the better credit risk a borrower is considered. The FICO scoring model uses five factors to determine the likelihood of default. The five factors used to create your FICO score are: payment history; outstanding balances; length of history; type of credit; and inquires. The overall score is a weighted average of each of these factors. The score breaks down with 35% of your overall score related to payment history, outstanding balances make up 30% of your score, the length of credit history has a 15% impact on your overall score, type of credit has a 10% impact on your score, and the amount of inquiries accounts for the final 10% of your overall scores. Generally, a credit score of 720 and above is considered excellent, 680 - 720 is considered good, 620 - 680 is considered fair, and 619 and below is considered poor.
In 2006, the three credit bureaus created a company called VantageScore Solutions. This company was created to start a new credit scoring model to compete with FICO. The two companies have been in ongoing litigation regarding the two scoring methods and the results have not been finalized. However, a majority of businesses and lenders still use FICO as the main credit scoring model.
As a credit repair specialist I hear "Fix My Credit Report" all the time. In order to help achieve the highest credit scores possible it is imperative that all consumers understand the FICO scoring model. If you are in need of additional information regarding affordable credit repair, credit scores, credit reports and everything related to personal credit. Please visit us at www.Credit-Mechanics.com!
