FICO Facts

The terms FICO score and credit score are often used synonymously to describe a numerical score that credit reporting agencies calculate based on an individual's credit history. FICO scores are used by lenders to assess the risk of lending to different individuals. Understanding a few basic aspects of FICO scores can potentially help you improve your score.

Why are They Called FICO Scores?

FICO scores get their name from the Fair Isaac Corporation, which created the formulas and software used to determine the scores. According to MSN, the three major credit-reporting agencies, Equifax, Experian and TransUnion, use the software created by FICO to calculate the risk of lending to a particular borrower based on his credit history.

What Scores are Possible?

FICO scores have minimum and maximum achievable score. According to MSN, a FICO score ranges from 300 to 850. The majority of people are likely to fall somewhere in the middle, such as in the 600s and 700s rather than at the extreme low or high range. Bankruptcy and foreclosure causes scores to be lower than the average.

What Impacts a FICO Score?

A variety of credit information goes into the calculation of a FICO score. According to Bankrate, 35 percent of a FICO score is based on your debt payment history, 30 percent is based on how much total debt you have compared to your credit limit, 15 percent is based on the length of your credit history, 10 percent is based on newly acquired debt and the final 10 percent is based on other factors, such as the type of debts you have. In general, paying off debts on time, having a low debt to credit ratio, having a long credit history and a small amount of newly acquired debt all tend to increase FICO scores.

Why is it Good to Have a High FICO Score?

Having a high FICO score can be advantageous in several ways. A high FICO score may allow you to be approved for loans and credit cards that you might not get with a lower score. Higher FICO scores may also allow you to get a lower interest rate on debt, meaning you pay less for the loans and credit you receive. Insurance companies may use a score similar to a FICO score to determine insurance rates.