What Is A FICO Score?
We all know that our credit scores are three-digit numbers that represent our spending habits. Most of us even know that it is called the FICO score. Do you know the factors that influence your credit score? Do you know how the score is generated? If not, here’s some concise information:
The Origin Of FICO
It was in the 1980s that FICO first came into existence. Yes, the very same decade that gave us over-the-top hairstyles, over-the-top fashion, and well, over-the-top everything. Nothing symbolized the decade of decadence better than Oliver Stone’s Wall Street.
Somewhere in the midst of all this came the Fair Isaac Company (FICO, get it?). These guys introduced a software model back in the day to help financial companies, especially lenders and insurance agencies, evaluate the creditworthiness of a particular individual. The model took into account certain details of the individual’s credit history to generate a three-digit number. This came to be known as the FICO score.
What Is a FICO Score?
Before we get into more detail about your credit score, we would like to touch upon the fact that your score and your credit report are two different things. The former is based on the latter. With that out of the way, let’s dive straight into FICO.
There are three major credit bureaus: TransUnion, Equifax, and Experian. So, don’t be surprised if you have three different FICO scores. One thing remains constant – the manner in which your score is calculated. To make it an easier read, we have broken down the various factors that determine your score.
Imagine you are sitting in front of a delicious-looking pie. The aroma itself is driving you crazy. You cannot resist anymore and you simply dig in:
- The first piece is probably the biggest chunk taken off the pie. In a FICO score, this represents your payment history: the most important factor that accounts for 35%.
- The next piece you bite off will be a little smaller. This represents the total amounts owed at 30%.
- With more than half of the pie gone, there are still bits and pieces left. 15% accounts for the length of your credit history, 10% for new credit, and the last remaining bite represents the type of credit in use.
As evidenced by our brief summary, there are many things that contribute to a credit score. It’s important that you understand the effects that your financial habits have on your credit. We can help you learn the right way to manage your credit and your spending.
Curious about the credit repair industry? Looking for ways to raise your rating? At Action Credit Repair, our experts will provide a personalized credit consultation, an audit of your credit history, and offer solutions to all of your credit obstacles. Contact us today to speak with an experienced professional: Call 518-945-2299 or email [email protected].