CREDIT SCORES
The FICO score is the scoring formula used by most lending institutions in the United States and Canada.  FICO stands for Fair Isaac Corporation and was developed in 1956 to help businesses assess consumer credit risk.  The FICO score ranges from 300 – 850.  According to Fair Isaac, the median score in the United States is 723.

NOTE: There are many credit scores available and marketed to consumers, including the Vantage Score developed by the three major credit bureaus to compete with Fair Isaac’s FICO score.  However, they are not necessarily based on the same formula that lenders use and are often very different.

WHAT MAKES UP THE FICO SCORE?

 
 

 

PAYMENT HISTORY – 35%
Includes account payment information on revolving and installment accounts; the number of accounts paid as agreed; delinquencies/late payments of 30+ days on accounts; adverse accounts such as public records and collection items; past due balances; how recent the delinquencies are.

AMOUNTS OWED – 30%
Includes the number of accounts with balances; amount owing on accounts; utilization ratio (balance to available credit) on revolving accounts; proportion of balance due compared to original loan amount on installment accounts.

LENGTH OF CREDIT HISTORY – 15%
Takes into account the time since the accounts were opened and the date of last activity on the account.

NEW CREDIT – 10%
Factors in this section include the number of recent Inquiries; the number of recently opened accounts; the length of time since those accounts were opened; and the re-establishment of positive items following past payment problems.

TYPES OF CREDIT USED – 10%
The number of various types of accounts and the mix of accounts such as credit cards, retail accounts, mortgage accounts, installment loans including automobiles.

NOTE:  The credit risk scoring formula was developed as a tool for financial institutions to have a consistent picture of consumer behavior no matter which company they did business with.  It is a voluntary act, not required by law, for companies to report information about their customers to the credit reporting agencies (credit bureaus).  Make sure your credit reports are accurate; click here for information to check your own credit reports.