FICO is the acronym for Fair Isaac Corporation, a publicly-traded corporation (under the symbol "FIC") that created the best-known and most widely used credit score model in the United States. It is calculated statistically, with information from a consumer's credit files. But this type of credit scoring is only one of several that are available but it is the most popular and most widely-used.
In the U.S., three credit reporting agencies, Equifax,Experian, and TransUnion, calculate a borrower's credit score using their own different computation formulas. FICO scores have different names at each of them but all of these scores are developed using the same methods by Fair Isaac, and have been rigorously tested to ensure they provide the most accurate picture of credit risk possible using credit report data.
The scores they generate (with trademarked names), differ in what they mean to predict, the statistical methods used to determine a credit-worthiness score, and what data are used and how they are weighted. Beacon, Beacon 5.0, Beacon 96, and Pinnacle scores are available only from Equifax; Empirica, Empirica Auto 95, Precision Score, and Precision 03 from TransUnion; and the Fair Isaac Risk Score is available from Experian. Although the Fair Isaac Corporation develops these credit score versions for the different agencies, they are different numbers, and are periodically updated to reflect current consumer loan repayment rates.
The NextGen Score is a scoring model designed for assessing consumer credit risk. It is similar to the traditional FICO scores with regard to intended use and general design. It has not enjoyed the same level of adoption as the traditional FICO score, but is used by some creditors. Other credit consumer scores are published by MyFICO.com and by Community Empower, as the CE Score.
In 2006, in attempting to make scoring consistent, the three major credit-reporting agencies introduced VantageScore. VantageScore uses a number range (501 to 990), which is different from FICO score, and assigns letter grades (A to F) to specific score ranges. A borrower's VantageScore may differ from agency to agency, but discrepancies stem from data differences in the reported credit information, not because of differences among credit-scoring mathematical models. Since FICO score remains as the most widely-used score by money lenders, the agencies continue offering FICO scores or similar.
A FICO score is between 300 and 850 with 60% of scores between 650 and 799. According to Fair Isaac the median score is 723 (half of scores above and below) whereas according to Experian (using the Fair Isaac risk model) the average credit score is 678 (lowest scores are farther from the median than the highest scores). The performance of the scores is monitored and the scores are periodically aligned so that a credit grantor normally does not need to be concerned about which score card was employed. Based on this, it is any creditor's aim to improve credit score which is to his advantage.
More FICO Score Infos
Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulas for calculating the scores are closely guarded secrets, the Fair Isaac Corporation has disclosed the following components and the approximate weighted contribution of each:
The above percentages provide very limited guidance in understanding the FICO score. For example, the 10% of the score allocated to "types of credit used" is undefined, leaving consumers unaware what type of credit mix to pursue. "Length of credit history" is also unclear; it consists of multiple factors — two being the oldest account open and the average length of time an other accounts have been open. Although only 35% is attributed to punctuality, if a consumer is substantially late on numerous accounts, his FICO score will fall far more than 35%. Bankruptcies, foreclosures, and judgments affect scores substantially, but are not included in the somewhat simplistic pie chart provided by Fair Isaac.
Current income and employment history do not influence the FICO score, but they are weighed when applying for credit. For instance, an unemployed individual with no sources of income will not usually be approved for a home mortgage, regardless of his or her FICO score.
There are other special factors which can weigh on the FICO score.
Credit scores – the FICO score, the most widely used credit bureau scores – have made big improvements in the credit process. Because of credit scores: