A credit score attempts to condense a borrower's credit
history into a single number.
A FICO score is a credit score developed by Fair
Isaac & Co. Credit scoring is a method of
determining the likelihood that credit users will pay
their bills. Fair Isaac began its pioneering work with
credit scoring in the late 1950s. Since then, scoring
has become widely accepted by lenders as a reliable
means of credit evaluation. A credit score attempts to
condense a borrower's credit history into a single
number. Fair Isaac & Co., and the credit bureaus, do
not reveal how these scores are computed. The Federal
Trade Commission has ruled this to be acceptable.
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. 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 numerous factors such as:
- 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
- Employment history
- 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 use the middle score.
