Credit score is also known as FICO score. Most creditors use it to evaluate your credit record. This involves using your credit application and report to get information about you, such as your annual income, outstanding debt, bill-paying history, and the number and types of accounts you have and how long you have had them. Potential lenders use your credit score to help predict whether you are a good risk to repay a loan and make payments on time.
A FICO score is a credit score developed by Fair Isaac & Co. This company 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 borrower’s 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.
FICO Score Calculation
Credit scores (also known as FICO 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.
analyze a borrower's credit history
considering numerous factors such as:
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
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 credit bureaus – Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may use the middle score.
How can I increase my score?
While it is difficult to increase your credit 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.