FICO Classification

Every credit reporting agency has its own system of determining credit scores. The system known today as FICO comes from the name Fair, Isaac and Company. That's the company that developed the grading system to provide potential lenders with a way to evaluate the risk involved with a credit applicant. Other companies have largely copied the model.

Significance

The different models have created problems because each company also has different point values when offering a credit score to a potential lender. The good news is that the major three credit bureaus have worked with FICO and have come up with a new classification system called VantageScore.

One easy way to understand the scoring system, the Experian website says, is that the new system is based roughly on the academic grading system. The VantageScore credit ranking system uses the following classifications: 901-990 equals A; 801-900 equals B; 701-800 equals C; 601-700 equals D; and 501-600 (high risk) equals F.

Function

This system of classification is now used by all three of the credit bureaus, and offers a more uniform understanding of how they rank people. FICO credit scores are available through Equifax and TransUnion, but Experian does not make them available anymore. The traditional FICO score ranges from 500 to 850, and divides up the classifications in the following way: 720-850, excellent; 700-719, very good; 675-699, good; 620-674, fair; 560-619, poor; and 500-619, very poor.

Function

FICO scores and the AdvantageScore change constantly. It changes with the changing levels of credit or debt in most people's ordinary financial dealings. Anytime new credit is extended, or even applied for, there is a change. Being late on a bill, or on several bills, over a short period also affects the score.

Effects

As an individual continues to conduct business, get new credit or pay off bills, the credit score continues to change. Financial transactions are required for the numbers to be changed at all. Factors that affect the FICO numbers on a regular basis are your payment history (35 percent); the length of your credit history (15 percent); the amounts still owed (30 percent); the different types of credit uses (credit cards, loans, mortgage, 10 percent); and any new credit (10 percent). Notice that payment history is the No. 1 factor, which means that making payments on time may help improve a credit score quickly.

Misconceptions

Several items are not reported that people mistakenly think may be on a credit report. While things like your address, and phone number are on the report, other things are not, such as a criminal record, race, religion, lifestyle preferences, or a medical history. Your spouse's credit history will not be on there, either.

Warning

If there is a sudden problem when you attempt to get new credit, you may have a problem with identity theft. If someone is using your identity, or one of your credit cards, it could affect your FICO credit score.