Lenders use it to estimate risk

A majority of lenders use FICO scores as one method to estimate an applicant’s credit risk. People with high FICO scores are likely to repay loans and credit cards more consistently than people with low FICO scores. Although FICO scores are remarkably predictive, no one can predict with certainty whether or not an applicant will repay a credit account.

In order for a FICO® (Fair, Isaac and Company) score to be calculated on your credit report, the report must contain at least one account which has been open for six months or greater. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough information — and enough recent information — in your report on which to base a score.

You can get your personal FICO report by visiting www.MyFICO.com.

About FICO scores
Credit bureau scores are often called "FICO scores" because most credit bureau scores used in the US are produced from software developed by Fair, Isaac and Company (FICO). FICO scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and TransUnion.

FICO scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a "good" or "bad" customer. And while many lenders use FICO scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single "cutoff score" used by all lenders and there are many additional factors that lenders use to determine your actual interest rates.

More than one score
In general, when people talk about "your score," they're talking about your current FICO score. However, there is no one score used to make decisions about you. This is true because:

• Credit bureau scores are not the only scores used.
  Many lenders use their own scores, which often will include the FICO score as well as other information about you.
  
  
• FICO scores are not the only credit bureau scores.
  There are other credit bureau scores, although FICO scores are by far the most commonly used. Other credit bureau scores may evaluate your credit report differently than FICO scores, and in some cases a higher score may mean more risk, not less risk as with FICO scores.
  
  
• Your score may be different at each of the three credit reporting agencies.
  The FICO score from each credit reporting agency considers only the data in your credit report at that agency. If your current scores from the three credit reporting agencies are different, it's probably because the information those agencies have on you differs.
  
  
• Your FICO score changes over time.
  As your data changes at the credit reporting agency, so will any new score based on your credit report. So your FICO score from a month ago is probably not the same score a lender would get from the credit reporting agency today.

Interpreting Your Score
When a lender receives your Fair, Isaac credit bureau risk score, up to four "score reason codes" are also delivered. These explain the top reasons why your score was not higher. If the lender rejects your request for credit, and your FICO® score was part of the reason, these score reasons can help the lender tell you why your score wasn't higher.

These score reasons are more useful than the score itself in helping you determine whether your credit report might contain errors, and how you might improve your score over time. However, if you already have a high score (for example, in the mid-700s or higher) some of the reasons may not be very helpful, as they may be marginal factors related to the last three categories described previously (length of credit history, new credit and types of credit in use).

Common score reasons
Here are the top 10 most frequently given score reasons. Note that the specific wording given by your lender may be different from this.

• Serious delinquency.
• Serious delinquency, and public record or collection filed.
• Derogatory public record or collection filed.
• Time since delinquency is too recent or unknown.
• Level of delinquency on accounts.
• Number of accounts with delinquency.
• Amount owed on accounts.
• Proportion of balances to credit limits on revolving accounts is too high.
• Length of time accounts have been established.
• Too many accounts with balances.

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