What is a Credit Score?

What are the most important factors in a FICO score?

FICO scores consider five main kinds of credit information.

what is a credit score

Listed From most important to least important, they are:

  1. Payment History: what is your track record?

  2. Amount Owed: how much is too much?

  3. Length of Credit History: how established is yours?

  4. New Credit: are you taking on more debt?

  5. Types of Credit in Use: is it a “healthy” mix?

** A score takes into consideration all these categories of information, not just one or two. Not one piece of information or fraction alone will determine your score.**

What are credit scores?

Scores are the modern way businesses stereotype applicants. When you try to open a credit account, apply for a telephone, rent a car, or even write a check, you are being judged by a computer using credit scoring. Instead of looking you in the eye and judging you on reputation, age, race, religion, hair length or sex, the modern business uses a computer to do the same thing. Some of the items that make up your credit scores are obvious (your debt to income ratio) and some make as much sense as reading tea leaves. In the end your entire existence is reduced to a single number that results in a “YES” or “NO” answer. “YES” results often get further study before they are accepted. “No” applicants are nearly always dropped.

What is a FICO score?

FICO is short for Fair Isaac and Company. Mr. Fair and Mr. Isaac spent approximately 10 years studying millions of loans and they created a computerized model that assesses a risk factor on everything from what type of work you do to how you repay your loan and how much you have owing on loan balances. They have determined that people with certain criteria almost always pay their obligations as agreed. This FICO score is a number that lenders use to help them decide if they can give a person a loan or credit card and how likely they may be paid back on time. The higher the score, the lower the risk to lenders. FICO scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and Trans Union.