What is a credit score/FICO score?
When credit scoring was developed by the Fair Isaac Corporation lenders and banks began using their “FICO” scoring system to make credit determinations. Credit scores are calculated using models that assign points for various types of information that have historically been predictors of future credit performance. These models were developed by studying the payment history of millions of borrowers. The model used for home mortgages was developed to predict the likelihood that a borrower will have a 90 day late payment in the next 24 months.
Simply put, credit scores are three-digit numbers increasingly used by lenders when evaluating credit worthiness. Insurers, employers, and landlords also use the scores to evaluate applications they receive. Scores range from 300 to 850. Only about 11% of the surveyed population ranks above 800; 29% ranks between 750 and 799. In 1956 Bill Fair and Earl Isaac founded the Fair, Isaac and Co. This was the first of it’s kind, pioneering the “credit score” for financial companies and lenders. Over the years, they expanded the field to incorporate decision systems, analytics, and consulting service. Now credit agencies and most lending companies use software from FICO (Beacon) or an in-house software system using elements from the FICO rating system, to calculate your credit score.
