FICO is the shortened version of the name Fair, Isaac Corporation, the data analytics company that specializes in assessing credit risk through numbers. FICO was founded in 1956, FICO was founded in 1956, one of FICO’s inventions is FICO® Scores, which are the most widely used credit scores in lending decisions (FICO® Score 9 is the most recent version available to lenders at the time of this writing.)
What information makes up your FICO score?
The FICO models assess risk based on the following factors:
- Payment history shows how often you have made payments on time and accounts for 35% of your total score.
- The total amount of debt matters. 30% of your score will take into account how much you owe in relation to how much you have available. People who pay revolving and/or open-ended account balances, such as credit cards, as agreed tend to show responsible credit behavior to lenders.However, consolidating or moving debt from one account to another will usually not help since the total amount owed remains the same.
- Length of credit history is important. People who do not frequently open new accounts and have longer credit histories generally pose less risk to lenders.This portion of your score makes up for 15% of the total.
- New credit matters, as well. People who recently opened a new credit account tend to be viewed as more risky to lenders. (The overall impact of new accounts makes up less than 10% or your score, however.)
- The remaining is made up of account mix. People who demonstrate moderate and conscientious use of various credit accounts, such as maintaining low balances and paying them on time, tend to demonstrate lower risk to lenders. Currently, lenders like to see a balance of revolving (such as credit cards) and installment loans (student debt, mortgages, and auto payments.)
FICO Score Ranges
Your FICO® Score, ranging somewhere between 300 and 850, is important to lenders and others assessing your likelihood that you will repay your credit obligations as agreed. Depending on what type of lending you are hoping to get, your bank may access one of many versions of FICO® Scores, including FICO® Auto Scores, FICO® Bankcard Scores, and specific score geared for mortgages[Jill1]Ability to pay is different than likelihood to repay.
This is why it’s recommended to know what your FICO® Score is, especially before applying for credit. Many credit card companies offer a free look at your FICO® Score with select accounts, as well.
FICO is a registered trademark of Fair Isaac Corporation in the Unites States and other countries.