Debt Recovery: An Introduction to Your FICO Score

In the 1960's, there was a company called Fair Isaac, this company invented a singular system to ascertain the credit potential of individuals who applied for loans. It is a bit complicated but by an elaborate mathematical calculation, they were capable of analyzing someone's credit history and then giving them a numerical figure that would present how probable it was in how capable they were to pay back a loan they were applying for.

Fair Isaac invented a credit risk scoring system for the financial services industry. This novel approach to loaning money enabled financial organizations to better their business operations and enlarge consumers' access to credit. Nowadays Fair Isaac's FICO score is accepted as the industry authority for lenders.

The FICO score boils down a borrower's credit history into a individual number based on past credit history. Fair Isaac company and the credit agencies don't disclose how these scores are calculated. The FTC has now ruled this to be standard. However, the sad reality is that even if we did know, we probably in all likelihood could not figure it ourselves in any case. I know for sure I would not be able to.

To figure credit scores mathematical tables are used by specifying points for distinct bits of data which best forecast future credit performance. Formulating these patterns requires analyzing how thousands, even millions, of individuals have used credit.

Developers of credit score have found certain elements in the information that have demonstrated or pointed to future credit performance. Patterns can be formulated from several origins of information. Credit agency models are formulated from data in consumer credit agency reports.

Credit scores examine a borrower's credit history looking at several factors such as:

1. Late payments

2. The total time credit has been established

3. The total credit used versus the total credit available

4. Duration of time at current address

5. Negative credit data such as bankruptcy, charge-offs, collections, etc.

At present there are three FICO scores calculated by information furnished from each one of the three bureaus--Experian, Trans Union and Equifax. A few lenders utilize one of these three scores, while other lenders might merely use the center score.

Fair Isaac has become so crucial in the financial industry that their word on your credit has become essentially the final word. How come banks and creditors invest so much credibility into one company? Well it just comes down to their proven track record.