Do you know Fair Isaac? The Fair Isaac Company is the creator of the FICO score – that little three-digit number that checks your ability to get a decent rate on your credit cards, home loans, or auto loans. It also affects your ability to obtain auto insurance, home insurance, and even to get a job. How can it be?
Fair Isaac Company was founded in 1956 to provide data to help companies make smarter decisions. In 1995, Fannie Mae and Freddie Mac gave the FICO score a major credibility boost when they recommended that lenders use the FICO score to rate home loan applicants. Imagine having no idea why your loan was declined, except that something called a FICO score was not good enough. It wasn’t until recently that Fair Isaac Company was even willing to share the top categories they use to calculate their score. The exact formula used to calculate your credit score remains a closely guarded secret. However, thanks to Internet lenders who released some of the FICO guidelines in early 2000 in response to public outcry over secrecy, Congress finally made it a law that people should have access to their scores.
More than 65% of lenders now use FICO scores to make sure they can get back the money they borrowed. If it is just possible that you are late or not paying your loan, those lenders will raise your interest rates or even deny you credit. In the next series of articles, I’ll cover the five factors that affect your credit score: payment history, amounts owed, length of credit history, new credit, and types of credit.
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