FICO scores are one of several credit scores that are used by lenders, banks, insurers, credit card companies and other companies to measure consumer risk objectively. A credit score can be created by different companies based on information in a credit report, but FICO® scores are the most used credit bureau scores in the world. According to the Fair Isaac Corporation, the creator of the FICO score, more than 100 billion scores have been sold by the company and three out of four US mortgage originations are based on a FICO score.
Most credit bureau scores are often called “FICO scores” because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac Corporation. In fact, Fair Isaac Corporation or FICO pioneered the wide spread use of credit scoring models. The FICO score is available through all of the major consumer reporting agencies in the United States and Canada: Equifax, Experian and TransUnion. But not all credit scores retrieved or sold to consumers are FICO scores.
Credit scores, including FICO scores are derived from the data in an individual’s credit report. Different credit scoring models can be used by different companies. And there are different credit scores and credit score modeling programs available. There is some significance to the fact that the FICO score is the biggest and as of now has the greatest impact in credit related decision making. The FICO score is a mathematical algorithm that is made available to the three main credit reporting agencies in a software package.
Different credit bureau scores will evaluate a credit report differently and comparing the absolute numbers between different credit bureau scores is meaningless. A higher number from one company does not necessarily mean it indicates the borrower is less of a credit risk. FICO scores currently range in value from 300-850.
The credit score, whether it is a FICO score or another model, is used primarily determine a numerical valuation on the quality of credit risk an individual presents. Credit scores are designed to be a guide to future risk based solely on credit report data. All current credit score models, including FICO scores, evaluate the data in the credit report and quantify it with a number in which the higher the number or credit score, the lower the risk.
One bit of confusion that can arise within the lending industry over FICO scores is the different named scores that are actually developed by Fair Isaac Corporation. FICO scores technically have different names at each of the credit reporting agencies. All of these scores, however, are developed using the same methods by the Fair Isaac Corporation.
Like an individual’s credit, a FICO score will change over time. As your data changes within the credit report or through the credit reporting agency, so will the credit score since it is based on the data in the credit report.
It is also important to note that since each credit reporting agency will have similar but not identical information about an individual’s credit profile, therefore the FICO score or any credit score will be slightly different from each of the major credit bureaus, Experian, TransUnion, and Equifax. This all means that an individual will have three potentially different FICO scores, one for each of the three major credit bureaus.
Remember, regardless of credit score obtained, the score is based on the information contained in the credit report. To change a score, you have to change the underlying data the score is based on. Any information not found in your credit report is not used to calculate a credit score or FICO score.