What is a FICO Score

What is a FICO score? Good question. Your FICO score is what your creditors really look at when they are considering lending you money. Your score is very important. The higher the score the lower interest rates you get and the easier it is for you to get a loan. Let’s examine what a FICO score is and what it means to you.




FICO is an acronym for Fair Isaac Corporation. This company started working with credit information between 1950 and 1960. They are traded with the symbol FIC. Eventually they came up with mathematical equations that takes all of the information in your credit report and assigns a number to it. Most lenders in the US use this number to determine your credit worthiness. Overall it is a series of calculations that have been based on past performances of millions of borrowers over a period of time. It is a statistical way of predicting how likely a borrower is to repay a loan based on comparing them to other borrowers with similar credit information. Now that you know what a FICO score is, let’s look at what it means to you.




’What is a FICO score calculation? This is information that the general population is not privy to. The credit companies are not required to disclose how this score is calculated. You can obtain your score from each of the major credit bureaus -- Equifax, Experian and TransUnion. However, they are not required to tell you how they came up with the score. There is no law that requires them to do so.




What does all of this mean to me? Simply put it means that you need to know what your score is. That information combined with your credit report will show you ways to improve your score. What is a FICO score improvement plan of action? First, look at your credit report. If there are any collection accounts, deal with them immediately. These have to be removed in order for your score to improve significantly. This means that you will have to pay off those outstanding debts or make arrangements with the creditors. If there are any incorrectly reported accounts, get that straightened out. Another way to improve your score is to lower the amount of your credit card balances. Pay down any cards that are nearing their maximum limit. You do not want your credit card balances to be more than half of their credit limit. Paying them off every month is even better. You have to keep at this. Your score will not improve overnight, but clearing up what we mentioned before will greatly improve your score over a couple of months. Next, do not apply for credit frequently. If you do, this will have a negative impact on your score. Be careful of whom you let look at your credit report. Every inquiry has the potential to lower your FICO score.




Overall we have seen how your FICO score is used to determine your credit worthiness. Although they are not required to tell you how they calculate the score, credit companies use this information more so than just your credit report. Get your “ducks in a row” before applying for credit. You may want to consider a credit alert service before you look to apply for a loan. As a savvy credit consumer, you know the answer to what is a FICO score and what it means to you.