What is FICO?

Robin Hill Last Updated Jul 30, 2019 (0) comment , , , ,

what is FICO

“What is FICO” is a loaded question.

“What is FICO” is one of those questions that illustrate the fact that we live in a world of dualities.

There are two answers:

  • In one case, it’s viewed as a credit score
  • In the other, it’s a company

Fair Isaac Corporation is the acronym for this particular term.  It was founded in 1956 by Engineer Bill Fair, and Mathematician Earl Isaac- hence “Fair-Isaac.” Fair and Isaac each invested $400 to start their company which was based on the “principle that data, used intelligently, can improve business decisions.” (Fair Isaac Corporation , n.d.)

The first credit scoring system for FICO was built in 1958 for American Investments.

In 1961 FICO moved their headquarters from San Francisco to San Rafael, California. In 2004 the headquarters was moved again to Minneapolis, Minnesota, but 2013 would bring another move back to California- specifically San Jose.

Throughout its decades long history, FICO has rolled out innovative products like ASAP (the first automated application-processing system) which debuted with Wells Fargo in 1972, and its first credit bureau risk score in 1981 (Fair Isaac Corporation , n.d.).

Essentially, FICO is an analytics software company. Its purpose is to provide risk assessment based on a specific algorithm which it developed over the last 50 years of the 20th century, and continues to do today. Its customer base consists of business in over 90 countries.

What You Should Know About Your FICO Credit Score

A FICO Credit Score is produced by FICO’s software and is based on information provided by the 3 major credit reporting bureaus: Experian, TransUnion, and Equifax. Although your FICO score is not your only credit score, it is the one that is most widely used by lenders. Other credit scores are offered by VantageScore and TransRisk.

FICO, VantageScore, and TransRisk differ in specific ways, but ultimately, they’re all based on a scale from 300 to 850. A VantageScore is usually provided to consumers who do not have sufficient credit history, or for whom the credit reporting bureaus cannot provide sufficient data. TransRisk is offered specifically by TransUnion. Of the three, FICO is the most widely used credit scoring model.

There is more than one FICO credit score. FICO SBSS (Small Business Scoring Service) is for small businesses. There is also a FICO Bankcard Score and FICO Auto Score, each of which are focused and geared to a specific industry to assess loan risk for different purposes. This is not an inclusive list. Just a general overview of the different scoring algorithms Fair Isaac Corp. offers its customer base.

All FICO credit scores are dependent upon the information provided in your credit report by the 3 reporting bureaus, and for each score, specific pieces of information will lower or raise your scores depending on the model being used.

As a result, the percentage points provided are not exact, and they will each vary depending on the scoring model used by the lender, and your overall credit profile.

Credit Scoring Model

VariablePercentage (rough estimate)Examples
Payment History35%Your history of bill pay, on time payments, and late payments.
Amounts Owed30%How much you owe on any given credit account and your credit utilization
Length of Credit History15%The age of your accounts, how long it’s been since your last used any given account, etc.
Credit Mix10%The credit you have broken down by type: Credit Cards, Mortgage Loans, Retail Loans
New Credit10%Inquiries, and new accounts

(DeNicola, 2018)

Like all software, FICO updates its algorithm and available products from time to time. The most recent version is FICO 9 which rolled out in 2014. However, specific lenders can choose to continue using older versions as updated versions are rolled out. This will have an impact on your credit score from lender to lender, but the changes are minimal as the main scoring model remains largely the same.

Basically, Fair Isaac is a company that provides an algorithm. That algorithm is the most widely used credit scoring model used by lenders today. The scores produced range from 300 to 850 with higher being better. Ultimately, the algorithm used is a predictive model of risk based on specific factors and components contained within your credit report as it is produced by Experian, Equifax, and TransUnion.

 

 

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