A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Fair, Isaac 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 borrowers 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.

Credit 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.

Credit scores analyze a borrower’s credit history considering numerous factors such as; Late payments, 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, employment history and 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 bureaus––Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may use the middle score.

It is possible to increase your FICO score, although it can be difficult to do in the short-term.  Some ways to increase your FICO score include; 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. 

Additionally, since the method used to calculate the credit score is essentially just a complicated formula, one can change the score by causing changes in the variables that are important factors in the equation. There are several approaches that are used in calculating the credit score.  These approaches include:

Credit Counseling: Various credit counsling organizations exist. Their services are often free of charge. Mortgage professionals caution that using a credit counseling service will negatively affect your ability to obtain a mortgage. In fact, many mortgage lenders consider credit counseling as bad as a bankruptcy. 

Credit repair: Many for-fee credit repair organizations also exist. These organizations employ less standard solutions. Many websites recommend against using credit-repair organizations, claiming that their tactics are illegal. A typical example of an illegal credit repair approach is to obtain an Employee Identification Number (EIN) and use this when applying for a credit (it is the same length as a Social Security Number and is tied to your name in the same way). This is illegal, however, and a blank credit report might look just as bad as one with a derogatory item on it. Some credit repair organizations claim immense improvements in scores in very short periods of time. Costs may be high and results are not usually guaranteed.  

You can also try and repair your credit yourself.  Though professionals may have useful advice, there are a number of ways to improve your FICO score.  Because the exact formula is not known, the following suggestions are not guarantees, but nevertheless are likely to result in a higher (better) score:  Check credit reports for accuracy. The first strategy to pursue in improving a FICO score is recommended by every credit repair organization and credit bureau.  Also, make sure that you are on time with paying your bills.It goes without saying that punctuality will improve your FICO score. Punctuality will not help in the short term, but over the course of a year, paying bills on time will increase your score by roughly 30 points, and, more importantly, will prevent your score from dropping.  You can also negotiate with collectors and businesses to remove any late payments or collections from a credit report. Often, collectors will happily remove notices off a credit report in exchange for prompt payment. It is important for consumers to obtain any agreement in writing, as once collectors have been paid off it is mostly impossible to have statements removed.

Related posts:

1. How Do You Score? What the Credit Score Thing Really Means
2. Debt Handling: FICO, What is That?
3. Six Ways to Raise your Credit Score
4. The Statute of Limitations and What it Means When Repairing your Credit
5. Helpful Hints on Raising your Credit Score as Quickly as Possible

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