How Your FICO Score Is Calculated
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Developed by Fair Isaac & Company, a FICO score is a credit score evaluation. The scoring method is used to determine the likelihood that credit users will pay their bills or debts. In the late 1950s,
Fair Isaac developed the credit scoring that is utilized by lenders. It is deemed a reliable means of credit
evaluation. A credit score calculates a borrower's credit history into a single number. Although,
credit bureaus do not reveal how the FICO score is computed, the Federal Trade Commission deems it acceptable.
Essentially, credit scores are calculated by using scoring models and mathematical tables. The variables are assigned points for different pieces of information which best predict future credit performance. The score model calculates predictive factors in the data. Credit bureau models are created from information by consumer credit bureau reports.
Credit scores are analyzed based on a borrower's credit history. It considers numerous factors:
- The length of time credit has been established
- Late payments or fees
- Negative credit data (bankruptcies, charge-offs, collections, etc.)
- The amount of credit used versus the amount of credit available.
- Time and stability at present residence
- Employment history
Credit scores are computed by information that is provided by the three credit bureaus: Experian, Trans Union and Equifax. Lenders use one of three of the scores and other lenders use the middle score.
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