Frequently Asked Questions (FAQ)
What is a FICO score?
A FICO score is a credit score developed by Fair Isaac & Co. Credit
scoring is a method of determining the likelihood that credit users
will pay their bills. Fair, Isaac began its pioneering work with credit
scoring in the late 1950s and, since then, scoring has become widely
accepted by lenders as a reliable means of credit evaluation. A credit
score attempts to condense a borrowers credit history into a single
number. Fair, Isaac & Co. and the credit bureaus do not reveal
how these scores are computed. The Federal Trade Commission has ruled
this to be acceptable.
Credit scores are calculated by using scoring
models and mathematical tables that assign points for different
pieces of information which best predict future credit performance.
Developing these models involves studying how thousands, even millions,
of people have used credit. Score-model developers find predictive
factors in the data that have proven to indicate future credit performance.
Models can be developed from different sources of data. Credit-bureau
models are developed from information in consumer credit-bureau
reports.
Credit scores analyze a borrower's credit history
considering numerous factors such as:
Late payments
The amount of time credit has been established
The amount of credit used versus the amount of credit available
Length of time at present residence
Employment history
Negative credit information such as bankruptcies, charge-offs, collections,
etc.
There are really three FICO scores computed by data provided by
each of the three bureaus––Experian, Trans Union and
Equifax. Some lenders use one of these three scores, while other
lenders may use the middle score.
Frequently Asked Questions
How can I increase my score? While it is difficult
to increase your score over the short run, here are some tips to
increase your score over a period of time.
Pay your bills on time. Late payments and collections
can have a serious impact on your score.
Do not apply for credit frequently. Having a large number of inquiries
on your credit report can worsen your score.
Reduce your credit-card balances. If you are "maxed" out
on your credit cards, this will affect your credit score negatively.
If you have limited credit, obtain additional credit. Not having
sufficient credit can negatively impact your score.
What if there is an error on my credit report? If you see an error
on your report, report it to the credit bureau. The three major
bureaus in the U.S., Equifax (1-800-685-1111), Trans Union (1-800-916-8800)
and Experian (1-888-397-3742) all have procedures for correcting
information promptly. Alternatively, your mortgage company may help
you correct this problem as well.
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