FICO

FICO may sound like the name of a dog, but to anyone applying for credit or a loan, it’s the most important factor in getting approved.

Background

FICO, short for the Fair Isaac Corporation, is the official name of your basic credit score. Fair Isaac began developing a method for determining credit scores in the 1950s. Although the exact formula is not publicized, FICO is now the industry standard for deciding a person’s creditworthiness and is used by the three major credit reporting agencies: Experian, Trans Union, and Equifax.

FICO scores range from 620-850, with higher scores being better. A person with a high score is likely to get better interest rates on home mortgages and other loans while someone with a low score may get denied or wind up with higher rates. Your score is a reflection of how you compare to other consumers and lets a financial institution determine how much of a risk you would be to lend money to.

FICO Factors

Your FICO score is based on a lot of the same information you can find in your credit report, so reviewing your report can give you an idea of where you stand. The main factors in your score are:

Credit History. How much time has passed since you opened your first account and how many accounts you have had since then.

New Accounts. How many and what types of account you have opened recently; as well as how many times your credit report has been viewed in recent months, which can be an indication of how many other accounts a consumer has applied for lately.

Debt. Considers all your debt, including credit cards, mortgage, and car loans. Also reviews how much of your debt has been paid.

Record of Payments. Missed or skipped payments and bankruptcy filings are evaluated along with on-time payments and paid accounts.

Type of Accounts. Although only a minor part of your score, what type of accounts you have is also looked at.

Checking Your FICO

Although it’s relatively easy to get a free annual credit report from the credit reporting agencies, the report does not include your FICO score. Checking your report often is still a great idea so you can catch any errors that could negatively affect your score. The report may also tip you off to credit card fraud if someone else has opened an account in your name.

So how do you find out your FICO? In most cases, you will have to pay for it. Myfico.com, the official site from Fair Isaac, offers several different options ranging from $14.95 for a basic report to $79.95 for ongoing monitoring of your score.

You may also find companies offering you a free FICO score, but these usually have strings attached. Most of these companies will require you to subscribe to a service like a credit monitor to get your free score. These services are usually free for a trial period like 30 days, so you can get your score and this service without paying for it as long as your cancel in time. However, it may be a hassle to cancel the service and if you forget to do it, you could end up paying close to $80.

The MyFICO website offers a free score calculator that will give you an idea of your score. The score is only an estimate rather than an exact number and is based on your answers to ten questions about your credit history and current debts. Make sure you answer the questions honestly so you have an accurate idea of where your FICO score falls.

Improving Your FICO

If your FICO score is lower than you expected, it will take some time to increase it. Paying your bills by their due date and paying down your debt will help raise your score. If you have just started using credit or don’t have much of a credit history because you only have one or two accounts, opening up other accounts and paying them diligently can increase your score.
[tag]credit-card,fico[/tag]