FICO, an acronym for the Fair Isaac Corporation, is a score that lenders use to determine the quality of your credit rating. It is popular because instead of a lender having to thumb through all of your credit history and read all of your past debts, they can just run your name and see if your score meets their standard. If not, no credit. If so, it is “How can I help you, good sir?” You can purchase your true FICO score (not the FAKO score, see below) from www.myfico.com.

The How

So, in reality, the FICO score is really a formula. It combines, multiplies, divides, and subtracts different variables and ultimately spits out your FICO score. This means that the formula must have a set of data to supply a result. Now this is what people fail to appreciate, your FICO score is only as reliable and accurate as the set of data it uses to calculate the score. This set of data is your credit file. This is why it is important to make sure everything in your file is accurate, even small details like address and past address. If your name is spelled incorrectly then that could seriously affect your FICO score, and that would be very inconvenient, especially if you are in the middle of buying a car or a house. Embarrassing also. Make sure your credit report has accurate personal information, it is worth your time to check.

The FICO score pulls different sets of information from this file to use in its calculation.

What information does the FICO score use exactly?

It is broken down into percentages, each class of information has a certain level of impact on the raising or lowering of your FICO score, like so:

• 35% Payment History
• 30% Money Owed
• 15% Amount of Overall Credit
• 10% New Credit
• 10% Type of Credit

Payment History

Guess what this is about? Yup, your payment history. This is where paying your car bill late every month will come back to haunt you. Promptness counts, and the FICO score is living proof.

Money Owed

Another tough one, this one is based on your total amount of outstanding balances on all loans and credit cards.

Amount of Overall Credit

Adds up all the credit you have, this includes credit cards and credit lines. If you don’t need a lot of credit, then tell the lender to lower the maximum credit limit, or else it can be used in a negative way on your FICO score.

New Credit & Type of Credit

This is credit you just received within the last 30 days or so. They want to know if you are all of a sudden going all over town requesting credit. Behavior like that can indicate a high risk loan, which the lender may shy away from. The type of credit you have is used also. There is a big difference between a $10,000 credit line for a mail-order enema company and a $10,000 credit limit on an American Express Gold Card. One has a much higher chance of being used, I hope you know which one

A good FICO score is 619 and up, it goes up to 850. Between 575 and 619 is where you will get the worst interest rates and terms of anybody anywhere. They know your credit is not good, but not bad enough to deny you, yet good enough for them to charge you whatever they want. Anything below 500 and you are in the credit crapper. You will have a lot of friends there, don’t worry. Most of the country’s middle class are there with you.

FAKO and FICO

Fair Isaac is the creator of the FICO score, however, the three credit bureaus have developed their own method of determining your FICO score, called the VantageScore model, or also called the FAKO score by credit professionals. This has created a line drawn in the sand that you as a consumer probably had no idea existed. The thing is, most lenders will only use the true FICO score from Fair Isaac, and not the FAKO. So if you do some research before buying a house and want to know what your FICO score is, you may very well unknowingly buy a FAKO score and then find out your true FICO score is less than you thought. Use the FICO scores from myfico.com to be sure you are getting the right one. NOT the ones at the credit bureau’s sites.

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