When you have been using credit for a long time now, you might already have heard about the FICO Score. Sure, you might have heard about it but it really pays to know what it is all about and how it can affect your own credit rating as well as your ability to avail of credit in the future. Here are just some of the facts.

What is a FICO score?

A FICO Score actually stands for Fair Isaac and Co. It is a method of credit scoring that was developed by the company that it stands for in order to help credit institutions to determine a person’s ability to pay bills. The Fair Isaac and Co. began the development of its type of credit scoring since the late 1950’s.

It has grown to be widely accepted as a standard for lenders in trying to assess and evaluate their borrowers. The FICO score is an attempt to take in the information taken from each person’s credit history and then try to compute the said credit information into a single score as a means to determine creditworthiness.

Factors that FICO score use

There are certain factors that FICO Score make use to determine a person’s credit worthiness. These factors are the information that can be taken from one’s credit history. As you might well know if you have availed of credit or loan in the past, your credit activities are compiled and then placed in a summary that comprises your credit history.

Credit companies and institutions may be able to see if you have made any late payments in the past. Information on the time that the credit has been established as well as well as in what amount can also be found in one’s credit history.

Bad credit history that you have gone through in the past such as bankruptcies, charge-offs, etc. are also reflected in the credit history and may likely be used in computing for the FICO Score.

Three types of FICO score

Currently in the US, there are three FICO Score that are being computed by the three major credit bureaus- Experian, Trans Union and Equifax. Lending institutions have it as their option to either make use of only one FICO Score to determine a borrower’s creditworthiness.

Some institutions can also make use of the three different FICO Scores or just take the middle score as an effective assessment of a prospective borrower to see if he or she has it takes to avail of credit and be trusted to pay it back on time.

Why FICO score is important?

Taking care of one’s FICO Score is very important especially for those who always need the advantages of credit to get by. Almost all types of credit make use of the FICO Score as a means to qualify one. Therefore, taking care of one’s credit history is important to maintain a positive FICO Score and better chances of availing the next loan or credit if needed.

Although FICO Scores may be made available only to credit institutions, one will have an idea on how his or her score fares out just by the way he or she handles credit. On time payments of debts and fewer delinquencies can guarantee one of a high FICO Score.