Credit Score News, Tips & Advice
Website CertifiedPrivacy Protected
Credit Score News, Tips & Advice « Credit Scores > Credit Score Advice > The FICO Credit Score Cards and the Five Dimensions of Your Credit Score

The FICO Credit Score Cards and the Five Dimensions of Your Credit Score

By Brian Anderson
Published: Thursday, November 26th, 2009

Fair Isaac Corporation or FICO developed the first scoring system in 1958 for American Investments and another scoring system for American and Bank Trust in 1970 for credit cards. In the early 1980s, FICO together with three major credit bureaus developed a scoring method to measure the creditworthiness of a person. 

It is called a credit score. It is used to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. This system has shown to be predictive of risks. 

A credit score advice maybe obtained from the three credit bureaus: Equifax, Experian and TransUnion and from FICO itself. Some lenders also have their own scoring but a majority of users use the FICO system. It is the most widely used and best known credit score model.

The FICO formula originally uses 10 scorecards and with FICO 08, there had been revisions. Fair Isaac believes that FICO 08 will do a better job at predicting the likelihood of default on a loan by making two changes to its existing model:

  • Authorized Users – An authorized user is a person that is permitted by another account holder to use their account.
  • Delinquencies – The second change in the scoring model has to do with payment patterns. The FICO 08 model will be more forgiving to consumers that are in arrears in one area, but have a number of other accounts that are in good standing.

The exact formula for calculating the score and the details on how the scorecards are used to divide into groups are proprietary information and owned and kept by Fair Isaac. Your credit score advice primarily consists of the 3 digit number which ranges from 300-850.

The 10 scorecards are categorized as follows:

  • Those with bankruptcies, foreclosures, wage attachments and public records on their credit report.
  • Those with serious delinquencies other than bankruptcies (60, 90, 120 day lates, collections, judgments, charge-offs repossessions, etc.)
  • Those with only 1 credit account (very thin files)
  • Those with only 2 credit accounts (thin files)
  •  Those with only 3 credit accounts
  • 0-2 years oldest account without serious delinquencies
  •  2-5 years oldest account  without serious delinquencies
  •  5-12 years oldest account without serious delinquencies
  •  12-19 years oldest account without serious delinquencies
  •  19+ years oldest account without serious delinquencies

As time passes one credit user moves from one category to another. There could be slight changes in one’s credit score advice since the report is evaluated differently. The good news with this transition is that it offers you the potential to reach a higher FICO score in the future. 

Credit score advice percentage breakdown:

  • 35% of score - Payment History- account payment information for credit cards, lenders, and retailers.  This is used to measure your ability to pay your bills on time.
  • 30% of score – Amounts Owed – the total amount of credit you have outstanding relative to the maximum amount creditors are willing to extend to you.
  • 15% of score – Length of Credit History – a measure of the length of time your accounts have been open with creditors and lenders.
  • 10% of score – New Credit – the number of times you’ve applied for credit in the recent past.
  • 10% of score - Types of Credit – this is the diversity of credit you have in your portfolio. 

These information are compared to the credit performance of other consumers under each score card; those with similar profiles.

For consumers seeking out their credit score advice, just how important is this three-digit number?

No Comments

No comments yet.

RSS feed for comments on this post.

Sorry, the comment form is closed at this time.