What is a FICO Score?

A method to measure the credit worthiness of a person without actually having to access the financial history and records of the person is known as the FICO score. It was originally developed by the Fair Isaac Corporation; this score is widely used now by major credit reporting agencies.

This score is also used by the credit card companies as well as banks to set the credit limits and interest rates for their customers. However the for the calculation of the FICO score it is mandatory that one credit account must have been opened and in operation for 6 months.

This is the bare minimum required for the calculation of the FICO score but the creditors look back to at least 4 credit accounts stretching back to a period of 12 months. This is especially true for those banks that provide large lines of credit and mortgages.

The standard for the calculation of FICO score involves some factors that are-

• 35% punctuality
• 30% ratio of debt used to total available credit
• 15% length of payment history
• 10% ratio of installment to revolving debt
• 10% credit currently applied for, number of credit checks etc.

The range of FICO score is approximately from 300-850. The median FICO score is about 720. Scores that are above 725 are considered good while those below 600 are bad. The credit reporting agencies might have different credit scores for the same individual. This is owing to the fact that different agencies have access to different parts of the credit history of the same person.

There are certain factors that have a lasting impact on the FICO score for instance unsatisfied court judgments and unpaid collections have negative effects. The people who need to clear off such debts etc should be aware that clearing such debts in the short term can decrease their FICO score momentarily.

Also those people who have too many consumer finance company accounts will have a lower FICO score. This is because such accounts are viewed as debt traps from which consumers can’t escape easily.

In some of the countries like USA and Canada the credit reporting agencies have to give the consumers their credit history and FICO scores.