Credit Scores - FICO Score

Good Credit ScoreYou should be reviewing a copy of your credit report at least every year.  (How to review your credit report for free three times a year)

Once upon a time, the person who gave you a loan at the local bank was a loan officer.  This wasn't just a title, it was a real position that took training and skill.  The primary skill?  Being able to decipher those credit reports. 

FICO Score

A company called Fair Isaac & Co. (hence, FICO) developed a system for grading those long detailed credit reports and returning a simple number.  The simple number meant that you didn't need special training or experience to determine if someone was credit worthy or not.  There was no need to judge whether it was a good thing or a bad thing that someone had eight credit cards but no balances on them.  All you had to do was look at a number and see if it was higher than a certain minimum.  This is why when you go into your local bank or credit union these days, anyone can help you with a loan, not just certain people.  It is also why the cashier at any big box store can issue you a credit card with instant approval and give you a 10% off purcahse credit card reward.

There are online financial services that let you get a look at your credit score. I analyzed whether Credit Karma is a scam and also did a review in order to check out one such outfit.

What about No FICO financing?

The FICO score was developed solely for use by financial institutions and not for the general public.  As such, FICO scores are deliberately shrouded in secrecy.  It is a pretty good assumption that if Fair Isaac and the banks had their way, no one would even know there was such a thing as a FICO score.  This is one reason why interpreting scores is not easy.  The difference between a 630 and a 660 isn't very clear.  That confusion is partly, to keep credit issuers from having to explain why your "good" credit doesn't qualify you for the "good" interest rate.

If you knew that having six credit cards with a combined limit of $40,000 and a balance of $10,000 gave you the highest possible credit score, you get six cards, and make sure no one ever raised your limit.  Your credit score would be higher.  But this kind of tweaking makes the scores less accurate for the banks.  So, the only verifiable information is the vague calculation categories released by Fair Isaac, and the various generalizations deduced by those work work extensively with credit scores.

How Credit scores are calculated

Credit score calculation details and how credit scores get calculated from credit report information.

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