A Bit of History and Info about FICO Credit Scores

In Uncategorized on September 28, 2010 at 1:22 am
Factors contributing to someone's credit score...

Image via Wikipedia

   A lot of people don’t know that in 2004, a power company in Texas called TXU Energy announced it would begin using customers’ credit scores to determine the rates their customers would pay for power. They wanted to follow the lead of the auto insurance industy, where customers with poor credit pay higher rates. When TXU Energy announced the plan, there was a huge public backlash, and the company ultimately scrapped the idea. 

  FICO is a publicly traded company. The FICO score was born in 1956 when two guys developed a mathematical formula that could accurately predict the likelihood of a borrower defaulting on a loan. That likelihood is expressed as the 3-digit FICO credit score on a scale of 300 to 850. When they were able to prove the accuracy of their scores, lenders everywhere paid them big bucks to score their prespective borrowers.
  The company was founded  by engineer Bill Fair and mathematician Earl Isaac, and had long been known as Fair Isaac Corporation. In 2009 the company changed its name to FICO. While there are other credit score computation services out there, the FICO score is by far the most widely used among lenders to help make decisions in the granting of loans.
 But a person’s credit score is no longer used solely by banks and other lenders. It has become standard practice for insurance companies to use a person’s credit score as part of their decision making process to determine how much to charge for insurance coverage. The lower your score, the more you pay. Many employers have come to use credit scores as a way to weed through potential job candidates. And utility companies too will often require a deposit from customers with unfavorable credit scores.
Weight of various factors determining a credit score:
35% – Payment History
30% – Debt Ratio (amount of debt you carry)
15% – Length of Credit History
10% – Types of Credit
10% – Number of Credit Inquiries

  1. If you ask me, the FICO score is the 3-digit mark of the beast described in the bible.

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