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Types of credit used (10%): Consumers can benefit by having a history of managing different types of credit.

There are several metrics in this category, most significantly the average age of the accounts on a report and the age of the oldest account.

Length of credit history or 'time in file' (15%): As a credit history ages it can have a positive impact on its FICO score.

According to FICO there are six different metrics in the debt category including the debt to limit ratio, number of accounts with balances, the amount owed across different types of accounts, and the amount paid down on installment loans.

Debt burden (30%): This category considers a number of debt-specific measurements.

Bankruptcy, settlements, charge-offs, repossessions, foreclosures, and late payments can cause a FICO score to drop.

Payment history (35%): Best described as the presence or lack of derogatory information.

Although the exact formulas for calculating credit scores are secret, FICO has disclosed the following components: Because a consumer's credit file may contain different information at each of the bureaus, FICO scores can vary depending on which bureau provides the information to FICO to generate the score.Ĭredit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. The FICO model is used by the vast majority of banks and credit grantors, and is based on consumer credit files of the three national credit bureaus: Experian, Equifax, and TransUnion. The FICO score was first introduced in 1989 by FICO, then called Fair, Isaac, and Company. : 607 Credit scoring models Īlthough various methods of estimating creditworthiness existed before, modern credit scoring models date to 1958, when Bill Fair and Earl Isaac created Credit Application Scoring Algorithms, their first credit scoring system.

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: 602 The FICO score burst into public consciousness in 1995 when Freddie Mac had lenders use credit scoring for all new mortgage applications. : 585ĭuring the 1970s and 80s, the credit reporting industry relentlessly consolidated : 598 and moved aggressively into prescreening. : 573 Credit scoring adoption accelerated to shield against discrimination lawsuits. : 447 The Equal Credit Opportunity Act banned denying credit on gender or marital status in 1974, along with race, nationality, religion, age, or receipt of public assistance in 1976. During the late 1950s, banks started using computerized credit scoring to redefine creditworthiness as abstract statistical risk. History īefore credit scores, credit was evaluated using credit reports from credit bureaus.

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Under the Dodd-Frank Act passed in 2010, a consumer is entitled to receive a free report of the specific credit score used if they are denied a loan, credit card or insurance due to their credit score. Lenders contend that widespread use of credit scores has made credit more widely available and less expensive for many consumers. Lenders, such as banks and credit card companies, use credit scores to evaluate the risk of lending money to consumers. It is an inexpensive and main alternative to other forms of consumer loan underwriting.

( September 2020)Ī credit score is a number that provides a comparative estimate of an individual's creditworthiness based on an analysis of their credit report.

CREDIT SCORE RANGE EQUIFAX UPDATE

Please help update this article to reflect recent events or newly available information. If old names are to be included for historical purposes, they should be in a separate 'history' section. Current nomenclature is a numbered FICO model with an optional industry type. The reason given is: References to 'credit bureau branded' credit scores, like Beacon, NextGen, and Pinnacle are obsolete. The factual accuracy of parts of this article (those related to Credit scoring models) may be compromised due to out-of-date information.

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