Getting to the Bottom of FICO
We’ve often heard the term FICO score bandied about in relation to credit score. What exactly does this term mean?
FICO scores are used to calculate credit risks using an algorithm that was designed by Bill Fair and Earl Isaac, founders of the Fair Isaac Corporation. The organization is also responsible for upgrading and improving the FICO scoring model.
TransUnion, Experian, and Equifax – the three credit and consumer reporting agencies use credit scores based on FICO, but market them under different names. TransUnion uses Precision, Experian calls it FICO Advanced Risk Score, and Equifax goes by the name Pinnacle. These are the new FICO score names though, effective from 2004, and are collectively called the NextGen scores. The old names were Beacon (Equifax), FICO (Experian), and Empirica (TransUnion).
FICO scores are calculated based on your credit report data, the number of bankruptcies, collections, judgments, late payments, and current debts against you. They also depend on the kind of credit you have, the age of your accounts, and all your applications for new credits. Your credit history is compared to that of others to determine an index of risk. These scores allow debtors to gauge the risks associated with lending you money, if you will pay on time or not.
The higher your FICO score, the better it is!
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