You would think that finding out what your credit score is would be easy.  It would seem logical to have your credit score appear right on your credit report, but that’s just not the way it is.

At one time, your credit score was a big secret known only to financial companies and banks.  With the FACT Act, legislators decided that it was important for individuals to know not only what their personal credit scores are but how they are calculated and how to improve them.

The main company who calculates your credit score is the Field, Isaac Company commonly known as FICO.  They invented the concept of the FICO scores so they are the ones who are known as experts in the industry.  Before we go into finding your score, let’s look at a few facts about the FICO score.

FICO scores are your credit rating:

• They range from 300-850, higher is better
• Most lenders base approval on them
• Higher scores mean lower interest rates

FICO scores are calculated based on your rating in five general categories:

• Payment history – 35%
• Amounts owed – 30%
• Length of credit history – 15%
• New credit – 10%
• Types of credit used – 10%

Field, Isaac Company is the inventor of the FICO score
They have the only website offering all 3 of your FICO scores
The median FICO score in the U.S. is 723

How To Read Your Credit Score

FICO scores range between 300 and 850.  Here’s what those scores mean:

Over 750 – you have excellent credit and will be able obtain credit easily

720 or more – you still have very good credit and will be able to obtain credit easily

660 to 720 – this is an acceptable credit.  You can still get loans, but you may pay a higher interest rate

620 to 660 – creditors are going to be uncertain about lending you money

Less than 620 – you have poor credit history and will probably not be able to obtain credit on your own.

Knowing the above information makes it obvious that if you need or want to get credit for something, the higher your score is, the better your chances are to not only get credit but get it at a handsome interest rate.  If you are in the 660 to 620 range, you may still get a loan, but the interest rate is likely to be higher.

That’s why it’s important to keep your credit good or establish good credit from the get go.

Understanding FICO Credit Scores

Today Fair Isaac’s FICO score is widely recognized as the industry standard for lenders.

The FICO score condenses a borrower’s credit history into a single number based on past credit history. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. The real truth is that even if we did know, we probably couldn’t calculate it ourselves anyway. Unless, of course, you happen to be a mathematical genius!

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit.

Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.

Credit scores analyze a borrower’s credit history considering numerous factors such as:

• Late payments
• The amount of time credit has been established
• The amount of credit used versus the amount of credit available
• Length of time at present residence
• Negative credit information such as bankruptcies, charge-offs, collections, etc.

There are really three FICO scores computed by data provided by each of the three bureaus–Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may just use the middle score.

Fair Isaac has become so important in the financial industry that their word on your credit has become basically the final word. Why would banks and creditors place so much credibility into one company? The answer is simply because of their proven track record.

The FICO score has proven to be not only an accurate and amazingly consistent way of showing a person’s credit reliability, but it has also saved companies millions of dollars in credit write-offs due to bad lending decisions. A study of loans that were granted and/or denied simply due to the FICO scores shows that Fair Isaac has been right over 80 percent of the time.

Of course, that required some chance taking on the part of many creditors, but they were willing to take the risk. After all, this was a ground-breaking thing determining credit worthiness through a simple three-digit number. Many companies jumped “on the bandwagon” just to show that Fair Isaac had the right idea.

Fast forward to the twenty-first century and you will find that FICO has become the definitive when it comes to financial and credit matters. They have proven their reliability and their worthiness just through trial and error.

Unfortunately, the problem is that finding your FICO score isn’t as easy as you think. The truth is that it’s not even shown on your credit report like you would think. In fact, for years and years, your credit score was a securely kept secret number that was elusive to the average person.