Your Credit And FICO

Check Out The "Credit Secrets Bible"

Back in the 1960’s, a unique system to determine the credit worthiness of people who apply for loans was devised by a company called Fair Isaac.  Through a complicated mathematical computation, they were able to study a person’s credit history and assign them a number that would represent how likely it was that they would be able to repay any loan they may be  applying for.

Fair Isaac sparked a revolution by pioneering credit risk scoring for the financial services industry. This new approach to lending enabled financial institutions to improve their business performance and expand consumers’ access to credit. A major benefit was that, of course the financial institutions now had an industry-wide standard benchmark. Today Fair Isaac’s FICO score is widely recognized as being that standardized benchmark.

The FICO score condenses a borrower’s credit history into a single number based on past credit history. Neither Fair, Isaac & Co. nor the credit bureaus reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable.  The real truth is that even if we did know, we probably couldn’t work it out ourselves anyway.  Unless, of course, you happen to be a mathematical genius!

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit in the past.

Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.

Credit scores analyze a borrower's credit history considering many factors including, but not limited to:

• Late payments

• The amount of time credit has been established

• The amount of credit used versus the amount of credit available

• Length of time at present residence

• Negative credit information such as bankruptcies, charge-offs, collections, etc.

There are really three FICO scores computed by data provided by each of the three bureaus––Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may just use the middle score.

Fair Isaac has become so important in the financial industry that their word on your credit has become basically the final word.  Why would banks and creditors place so much credibility into one company?  The answer is simply because of their proven history and track record.

The FICO score has proven to be not only an accurate and  consistent way of showing a person’s credit reliability, but it has also saved many companies millions of dollars in credit write-offs due to bad lending decisions.  A study of loans that were granted and/or denied simply due to the FICO scores shows that Fair Isaac has been right in over 80 percent of the time.

Of course, that required some risk taking on the part of many creditors, but they were willing to take the risk.  After all, this was a ground-breaking formula, being able to  determine credit worthiness through a simple three-digit number.  Many companies jumped “on the bandwagon” just to show that Fair Isaac had the right idea.

Check Out The "Credit Secrets Bible"

Fast forward to the twenty-first century and you will find that FICO has become the definitive when it comes to financial and credit matters.  They have proven their reliability and their worthiness just through an extended period of trial and error.

Unfortunately, finding your FICO score isn’t as easy as you think.  The truth is that it’s not even shown on your credit report like you would presume it would be.  In fact, for years and years, your credit score was a securely kept secret number that was confidential, and elusive to the average person.

Don't Pay Someone Else Thousands, Do It Yourself!