FICO Tutorial

FICO is the acronym for the Fair Isaac Corporation, a company that pioneered the practice of calculating credit scores. Though originally considered private, proprietary information, today consumers have the right to know the information in their credit reports, which is used to produce a credit score. Though there are several different types of credit scores, all the major variations are based on the FICO factors, so FICO score is typically synonymous with credit score.

Minimal Requirements

You will have a credit report in your name as long as three minimal requirements are met. If you are not listed as deceased and have at least one credit account open for at least six months and have not disputed the existence of the credit account within the past six months, you will have a credit report. Every time you or a lender requests your credit score, it is calculated anew from the information in your credit report.

Major Factors Affecting Your Score

The two major factors that determine your FICO score are your payment history and the amount owed. Payment history includes amount and number of late payments, the number of accounts currently past due, adverse public records, such as a bankruptcy filing or wage garnishment, and the time since any adverse history item. The amount owed refers to the number and types of accounts in which you're carrying balances, and the total outstanding debt. Together these two factors account for 65 percent of your credit score.

Other Factors

The remaining 35 percent of your FICO score is determined by the length of your credit history, the number of recently opened lines of credit or recent credit inquiries, and the types of credit. These factors help round out the picture of your credit worthiness. The longer you've responsibly managed your credit, the higher your score will likely be. Similarly, diversity in your credit, including a mix of long- and short-term secured and unsecured debts, also indicates responsibility. On the other hand, lots of new credit or inquiries suggests financial irresponsibility or desperation.

Fixing Errors

Under the Fair Credit Reporting Act, you have the right to dispute errors in your credit report. To do so, send a letter to the reporting agency reporting the error and clearly explain why the information is inaccurate. Include copies of any documentation you have supporting the existence of an error and request deletion or correction of the error as appropriate. When you dispute an item on your report in this way, the reporting agency is required by law to conduct an investigation within 30 days. If the item is truly in error, it must be corrected. Disputing an accurate statement in your report, however, will not improve your credit score.