FICO is an acronym for “Fair Isaac Company,” a company that created the original scoring model. Also known as BEACON, and currently NEXTGEN, FICO is a mathematical model that is used as a tool for lenders to qualify prospective loan applicants. Mainly three credit bureaus provide NEXTGEN or FICO credit data depending on the loan applicant’s credit bureau, United States location:
Transunion: Precision (formerly EMPIRICA), Midwest area
Experian: FICO Advanced Risk Score (formerly FICO), East/West/South area
Equifax: Pinnacle (formerly BEACON), East/West/South area
The FICO score is just one part of a credit report. Other credit factors will be discussed shortly.
From a lender’s perspective, a credit report including a FICO score is what banks, mortgage loan companies, and merchants use to determine the credit worthiness of a prospective borrower of money. A prospective borrower’s credit report contains credit data including FICO scores, which the lender uses to evaluate the credit risk of a prospective borrower.
From a credit user’s perspective, a credit report including a FICO score represents past credit behavior and the likelihood that this behavior will continue in the future. It behooves the credit user to maintain good credit, that is, establishing a good track record. For example, late payments lower a FICO score, prompt regular payments raise a FICO score. The credit user may have a low score, but that profile can be amended into a good FICO score with the re-establishment of a good track record.
Your credit report contains FICO scores that have been calculated from various credit data. The data is grouped into five main categories:
35% Payment History
15% Credit Account History
10% New Credit
10% Types of Credit
30% Current Debts
Payment history includes information on specific account payments, delinquencies, and amending of delinquencies.
Credit account history includes account activity since the beginning of each account opened.
New credit is the number of new accounts opened, new credit inquiries, type of accounts, and re-establishment of good credit following past payment delinquencies.
Types of credit includes information of specific kinds of accounts used such as credit cards, lines of credit, mortgage loans, and retail accounts.
Current debts are amounts owed on specific types of accounts, account balances, percentage of credit cards used, and loan installments outstanding.
But as aforementioned, other factors, not just FICO scores, are used by lenders to evaluate the credit behavior of a prospective borrower including:
A combination of several credit factors, specific to your credit needs may be different than another’s credit needs.
Income status, length of present job, and type of credit requested are considered.
Late payments may lead to a bad credit history, but you can improve your FICO score by re-establishing credit with a track record of prompt, regular payments.
If you are new to credit or have not used credit much, the weight of the 5 FICO categories may differ.
In summary, a FICO score is just one part of a credit report that a lender looks at when loaning money to a prospective borrower. Other credit factors are taken into consideration. You can raise your FICO score by re-establishing credit, meeting or exceeding a credit account’s, payment installment requirements.
Learn more about FICO vs. Vantage Score.