FICO Scores And Your Credit

by Sharon Hassler, Founder/Webmaster, GoGetNotary.com


(1) What Does FICO® Mean?
(2) What Is a FICO® Score?
(3) How Does a Lender Get a FICO® Score?
(4) How Can I Get My FICO® Score and FREE Credit Report?
(5) What If I Find a Mistake in My Credit Report?
(6) How Often Does a FICO® Score Change?
(7) How Are Scores Calculated?
(8) How Are Scores Rated?
(9) What Is a Score Reason Code?

1. What Does FICO® Mean?

The abbreviation “FICO” comes from Fair, Isaac and Company. That organization (now renamed Fair Isaac Corporation) was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac, on the principle that data, used intelligently, can improve business decisions. Along with many other risk/behavior systems and software developed over the years came credit scoring. They introduced the first Fair Isaac credit bureau risk score in 1981. Today FICO® is the standard system used by credit bureaus to report scores; the FICO® score is the standard measure used by lenders to evaluate how likely it is that the borrower will repay the loan.

2. What Is A FICO® Score?

Your FICO® score is a number calculated on information in your credit history as maintained by a credit bureau. It’s based five factors: timeliness of payments, amount of debt owed, age of account, type of account, and number of recent inquiries for new credit. (The next time you’re offered 10% off on a purchase if you open a store credit account, remember that’s another “inquiry” ding on your credit report!). A high score indicates you are low risk to a lender and, thus, you may receive a better interest rate. A low score indicates high risk so a lender may charge a higher interest rate or deny your loan. However, keep in mind that lenders look at other criteria than the credit score including your income, your employment record and how much and what kind of credit you are seeking. Your credit score can affect not just a home loan but any credit you’re requesting, for a car, cell phone, credit card…

3. How Does a Lender Get a FICO® Score?

When a borrower applies for a loan, the lender will ask permission to order a credit report. The reports come from three credit bureaus—Experian, TransUnion and Equifax—and, since the bureaus obtain different data, their reports and scores generally will not be the same. The lender may order all three credit reports and average the three scores. If you want to try to raise your total FICO® score, it’s important to get all three credit reports and compare their content. If you find that the credit bureau reporting the lowest score is missing positive information or shows negative mistakes that could be corrected, work on improving that credit report first.

4. How Can I Get My FICO® Score and FREE Credit Report?

Thanks to an amendment to the Fair Credit Reporting Act passed by Congress, you can receive a FREE credit report from each of the three credit-reporting bureaus once every 12 months. (The amendment, however, does NOT allow you to get your FICO® score for free, and that score is very important to lenders.) For details and to request a free credit report, visit www.annualcreditreport.com. Or you can contact each of the three credit-reporting bureaus individually:

Experian: 888-397-3742 or visit Experian.com
Equifax: 800-685-1111 or visit Equifax.com
TransUnion: 800-916-8800 or visit TransUnion.com

To save time, you can order all three credit reports and FICO® scores for a small fee. One choice is MyFICO.com where you’ll also find more info on improving your credit and FICO® scores. Or get a FREE 3-in-1 Credit Report and FICO score with trial at PrivacyMatters123! If you join, you can cancel at anytime; however, wlong with allowing you to review your report for identity theft, you can join for a few months to monitor your score while you work on improving it.

5. What If I Find a Mistake on My Credit Report?

Contact the credit bureau (see toll-free phones above) for instructions on requesting corrections to your report. You will need to send your request in writing along with any proof you have to document the mistake. You can also ask for comments to be added to your report, such as a valid explanation of why you were late on a payment.

6. How Often Does a FICO® Score Change?

Your score can change every day, any time new information is reported to one of the credit bureaus. Besides updates, the simple passing of time can affect your score, too, and that could be a good thing. The older any late payments, bankruptcies, repossessions or foreclosures are, the better your score.

7. How Are Scores Calculated?

Computer-based scoring models are applied to data in the credit report, resulting in points for five different factors: payment history, amounts owed, length of credit history, number of new credit accounts opened, and types of credit used. For an in-depth explanation of these factors, visit Understanding FICO® Factors at GoGetLoan.com™.

8. How Are Scores Rated?

Scores range from 300 to 850 with most falling in the middle range. According to Brian Sacks, mortgage broker, nationally recognized expert in credit challenges and author of Yes, You Can Get A Mortgage, no one cutoff is used by all lenders, but usually a score must be above 620 to be considered. The following is how most lenders look at FICO® scores:

  • 720 and above—The risk of the person defaulting on the loan is very low.
  • 660 through 719—The risk of default is low.
  • 620 through 659—The risk of default is higher, but not so great that the applicant can’t be considered favorably.
  • 619 and below—The risk of default is statistically very high.

9. What Is a Score Reason Code?

When a lender receives a credit score, the report usually includes from one to four “score reason codes.” These codes provide information about why the score was not higher. Lenders can share that information with you. The score reasons are more useful to you than the scores themselves because they shed light on what problems exist in your credit history, including possible errors that need to be corrected in the report. The top 10 most frequently given score reason codes are:

  • Serious delinquency
  • Serious delinquency and public record or collection filed
  • Derogatory public record or collection filed
  • Time since delinquency is too recent or unknown
  • Level of delinquency on accounts
  • Number of accounts with delinquency
  • Amount owed on accounts
  • Proportion of balances to credit limits on revolving accounts is too high
  • Length of time accounts have been established
  • Too many accounts with balances

©Copyright Sharon Hassler. All rights reserved. Sharon Hassler, Founder/Webmaster for GoGetNotary.com, is a former loan officer, real estate agent and marketing consultant. She served as Communications Manager for First American Title-Arizona for 11 years. For more about Sharon, visit GoGetNotary.com/Get/Sharon.