FICO score is a credit score which was developed by Fair Isaac and Company as a method of checking on a person’s ability to pay for his debts which will most likely determine how worthy s/he is in paying for debts or loans. Fair and Isaac are considered to be pioneers in the credit scoring industry. FICO scores were introduced in the 1950?s and have since been accepted by lenders as a reliable means of evaluating one’s credit capacity.
The computation of one?s FICO score is a trade secret protected by federal laws. FICO scores are calculated using formulae that assign points to particular and significant information that can predict one’s ability to pay for his/her debts. They are highly predictive in nature which may assure lenders of a person’s ability to pay for his/her debts. Fair Isaacs and Company, however, disclosed components and their approximate weighted contribution for users to better understand how FICO scores work. Payment punctuality, the credit capacity currently in use, length of credit history, types of credit used, and recent credit obtained recently are the components which have assigned values are what FICO scores employ to calculate one?s score ready for interpretation.
Certain factors which contribute to the interpretation of one’s FICO score include the person?s history of late payments recorded by the firms in which s/he has credit to. One’s ability to pay on time is an important factor in the interpretation of his/her FICO score. Even the period of time in which the person has accumulated his/her current credit standing is looked into when interpreting FICO scores, checking the amount of credit used against the amount of credit currently available. Employment, notably security of tenure is also considered since this may shed light on a person?s ability to pay for debts. Other negative credit information such as bankruptcy and charge-offs is also noted when interpreting FICO scores.