Credit Score Vs. Fico

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The world of credit ratings can seem overly complicated and difficult to understand. When you find out that there are not only “credit scores” but also something called a “FICO score,” you may become even more intimidated. But it’s actually not that complicated.

Credit reports are used to calculate credit scores. Included in the report is information such as your current credit accounts, payments histories on each, credit inquiries, how you’re using your credit limits and whether or not you’ve ever declared bankruptcy or used a debt consolidation company. Your FICO (Fair Isaac and Co. †they developed software in the 80’s that enabled companies to determine credit risks based on a number gleaned from a person or company’s credit history) number is the standard by which the three major credit agencies (Experian, TransUnion and Equifax) determine your credit score, between 300 and 850.

FICO credit scores are based on your credit history, but are not listed as part ...
... of your credit reports. Unlike your credit report, you’re not entitled by law to receive your FICO score from the three reporting agencies. You might be required to pay a fee to know what number or score the three entities have given your credit.

A FICO credit score is based off of your credit history, but it’s not actually a part of your credit report. Instead, the three major credit bureaus will calculate your FICO based on your credit history they have on file. This means you can have up to three different FICO scores at one time. Your FICO score does not come with your credit report and it isn’t something you’re entitled to annually. You may have to pay a fee to actually receive your score.

The way the FICO score is made up is this: Payment History, 35%; Total Amounts Owed, 30%; Length of Credit History, 15%; New Credit, 15%; and Type of Credit in Use, 10%. Notice that the first two items total 65% of your final score. Think about getting those in better shape if you’re looking to improve your credit report and FICO score.

Understand that a lower FICO score can hurt you when it’s time for you to apply for a major loan for things such as cars or homes. Your credit and FICO scores will absolutely come into play when a lender looks at you. You may either be charged more interest and higher fees if you do get the loan, or you may be turned down altogether. In fact, many employers now look at credit scores when making hire-decisions to determine a person’s trustworthiness and financial viability. They may decide to not trust someone who carries too much debt, or has a history of blowing off payments (even if you weren’t “blowing them off”).

Take the time to learn what creditors are looking for, and how to improve your credit and FICO scores. It all starts with getting current copies of your credit reports from the three major reporting agencies, and making sure the information is accurate. If there’s incorrect information on your credit report, Credit Elves will help you dispute any information by providing dispute letters for you.