FICO Credit Score: Facts vs Myths

Fact: FICO stands for the Fair Isaac Corporation. FICO was a pioneer in calculating credit scores based on information collected by credit reporting agencies. FICO scores drive over 10 billion credit decisions per year and is used by 90% of all lenders in the US when deciding whether to offer you a loan or credit, and in setting the rate and terms. FICO scores drive credit agencies such as Equifax, Experian and TransUnion.

Myth: Credit worthiness is affected by your age and where you live.

Fact:  Credit agencies consider such factors as tradelines and accounts, credit inquires, collections, and public records. They do not consider age, address, employment, income, race, or gender.

Myth: Paying off your debt will fix your credit score.

Fact: FICO was designed to predict the future based on the past. This is why you cannot cure a poor payment history simply by paying off bad debt. Thirty-five percent (35%) of your FICO Score is based on payment history. Other scoring considerations include outstanding debt (30%), credit history length (15%), credit mix (10%), and pursing new credit (10%).

Myth: Everyone has one credit score.

Fact: There are seven different score versions that FICO creates including credit card scoring and automobile scoring. Each lender picks the type score they want to receive. Mortgage lending merges scores from three different models.

Myth: Paying your bills on time is all you need for a perfect credit score

Fact: The ideal credit score consists of the following:

•             Zero delinquency

•             1 – 6 overall active revolving accounts

•             48+ months average age of accounts

•             Zero inquiries in last six months

•             1+ bank card tradelines