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FICO Score

That is what it could stand for. After all it was the first company to introduce scoring in the credit market.

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The company was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac. Since it’s inception it has changed from being Fair, Isaac and Company to Fair Isaac Corporation. It is however referred to as FICO.

What it has done has revolutionized the lending game. It has simultaneously made it easy and difficult for individuals to get loans. It all depends on what your credit behavior has been like. Wise and responsible behavior gets rewarded with faster and better credit.

Its scoring system known as the FICO score was adopted by all of the three major nationwide consumer credit bureaus although at each bureau has it in different names. Fair Isaac Corporation provides the credit bureaus with the software needed to compute credit scores from the information in the reports created by these bureaus.

What goes to make your FICO score?

FICO scoring is based on the following parameters:

  • Payment History
  • Amounts Owed
  • Length of Credit History
  • New Credit
  • Types of Credit


However each parameter does not carry the same weight. Payment History accounts for 35%, Amounts owed for 30%, Length of Credit History for 15%, New Credit for 10% and Types of Credit for 10%.

Payment History
All the details of your past payments on borrowings play the most important role in determining the FICO score. Delayed payments on any loan whether it be a mortgage payment or a car loan, can significantly lower your FICO scoring.

Amounts Owed
The next most important parameter in forming the FICO score takes into account all the details of any credit accorded to you at that point in the market. All details of this in terms of how many outstanding loans and how many balance payments remaining are taken into consideration. If your credit cards are maxed out it would reflect negatively on your score

Length of Credit History
The longer you have been in the credit game the better it is for your score. If you have old credit cards and not had any cancelled it would be a positive thing because you would be a long standing client in the credit market. And the known devil is better than the unknown devil to everybody, even to your creditors.

New Credit
Any new credit cards or loans you have taken reflect in the score. If you have recently taken out many loans or suddenly taken out many credit cards then it would reflect negatively in your score as this would mean you have suddenly been facing a financial crisis of sorts and are already in debt to a number of creditors so your ability to get even more credit would be lowered

Types of Credit
The more different types of credit that you have been managing the better it is for your score. The logic is that if you are used to managing different types of loans – auto loans, revolving credit, mortgage payments then you are proficient in managing your finances and so you would know and manage any new loan that you may be given.

This article is just a short piece on the factors that determine your FICO score. I will discuss how to improve your score in future articles.

In the meantime, here’s wishing you good financial health throughout your life.

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