FAIR ISAAC AND FICO SCORE

Fair Isaac Corporation, the organization that developed the FICO Score, started its path breaking work with credit scoring in the late 1950’s. In the year 1958, Fair Isaac built its first credit scoring system for American Investments. Later on, Fair Isaac developed credit scoring system for Montgomery Ward and Connecticut Bank and Trust. In 1975, the organization created the first behavior scoring system for Wells Fargo.

However, these early scoring models were specific for each company. The first general-purpose FICO score was developed in the year 1989 in partnership with the national bureau Equifax. In 1991, the FICO credit bureau risk scores were made available at all three major US credit reporting agencies — BEACON at Equifax, Experian/Fair Isaac model at Experian and the EMPIRICA® at Trans Union.

The FICO scores are calculated based on a mathematical algorithm that takes into account the different information included in a person’s credit report. Some of the aspects that the algorithm takes into account are:

Payment history
Outstanding debt
Length of credit history
New credit
How many and the types of credit used

The FICO score ranges from 300 to 850. The vast majority of people have scores that range between 600 and 800. Fair Isaac gives the break out of the credit scores across the nation:

The median credit score is 723; scores above 800 are considered perfect scores by the lenders, while scores that are below 600 are considered poor. A borrower with a score below 600 will face lots of troubles in getting his loan application approved; even if he manages to obtain a new credit he will be charged an exorbitant amount as interest. Thus, it is advisable to have a sound credit score to receive better credit terms.

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