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FICO scoring secrets

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I got this from another board....enjoy

I had a chance to spend some time and chat with a Fair Issac IT employee at a recent trade show, and of course I brought up the subject of the FICO scores and their secrecy.

He did admit that the official scoring IS secret, but is not that complicated to figure out given "everything that is disclosed publicly". The way scores are calculated are due to "weighting" - so if someone has some math backround, this sounds familiar.

First of all he says, scores are only within a specific range (I think I read 350 to 850 or something like that...that is there is no 'zero' score nor is there a 999 score) the actual range is 100% so 850-350=500 represents 100% every percentage counts as 5 points in that category....). It is apparently therectically impossible to score the lowest or the highest (like reaching infinity).

Now the 500 points (or 100%) is distributed as follows:

You start at 350 points - everyone gets that

35% (or 175 points) is 'payment history'

30% (or 150 points) is 'amounts owed'

15% (or 75 points) is 'length of credit history'

10% (or 50 points) is 'new credit'

10% (or 50 points) is 'types of credit'


100% or 500 points

Each category is calculated in its own way due to the nature of what it contains, for instance 'new credit' simply reduces scoring the more numbers (ie: inquiries) are put in there whereas 'payment history is the most complex requiring calculating number of accounts, average days due, length of account, etc)

Certain categories start out in the middle and + or - depending (like payment history) and some start out at max and go down as the numbers increase.

For instance, in the 'new credit' (which is the simplest apparently), you start with 50 points and it goes down by 10 every time you have a new credit app within the past 6 months. That number changes to 5 as the 3 months moves to 6 months and goes down to zero after a year. For instance you applied for a card this month, you lose 10 points. Apply for another, bang, another 10 points. You are down 20 points. as you pass the 3 months mark without applying for any new credit, the 20 becomes 10 - therefore you simply "gain" 10 points as time goes on. At the 6 month mark, you gain another 5 (as long as no new credit is applied for) and then another 5 at the one year mark. Now it sounds like you are GAINING points - but actually you are only winning them BACK from being lost.

Types of credit category: you start with 0. Now this is a 'portfolio' category. The 50 points "basket" is evaluated on the type of credit you have. Installment loans, or credit margins give you the MAX - the are harder to get and have a fixed monthy payment. 'Good credit' users have a healthy mix - like 2 installment loans and 2 credit cards and no finance loans. You get points mainly for a healthy mix - not just a number of credit cards. The numbers are something like 20 for Installment, margins, and car loans and 10 for credit cards up to 4, then you lose points (on CC's only). You lose points by having finance company loans (since their interest rates are highers and they are lenders of last resort and frequntly loans are 'secured' by home equity or a co-signer). The stronger your basket is, the higher your number goes - up to a max of 50 points of course.

Amounts owed category is "weighted". Basically it is credit used divided by credit available. The used divided by available factor is inversely scored. Mortgages do not count here. For instance, Having $20000 of credit and carrying all $20000 will give you very low points - maybe 10 points only out of 150 possible. But carrying a balance of 0 on $20000 available will score you close to 150 points! That means that although you have high credit limits, you don;t need or use that credit - a good risk and indication of good money management. Maxing out all credit limits (ie $20,000 owing on $20,000) will give you very few points - not 0 but something like 10.

However the higher the AVAILABLE credit number will give you more points. In other words 0/$500 does not carry the same as 0/$8000. And I was told that THIS category has the most significant impact. Keeping your balances low or nil will yield you close to 150 points reagrdless of any time element involved. Fin out when credit cards post their oustanding balances (usually it is your statement date but may be different) and make sure you can get your balanace paid off by that date - and then watch your score shoot up.

Length of credit history (75 points) is some convoluted formula that adds more points the longer you have credit history reporting for you. Basically it is 0 points when you start and maxes out at 75 if you have something like 40 years - which for most is around 58 years old !!! The MORE older accounts you have the better, and accelerates the score. Apparently they use points for months time accounts (ie 2 accounts x 200 months plus 2 accounts x 10 months plus 1 account x 5 months would give 425 month-accounts over a number like 800 = 54% and therefore give you 40 points out of 75 which is the percentage.

Payment History is a whopping 175 points and is the most complex. Late payments are killers here apparently. One late payment on an installment loan can wipe away 5 years of good payments. 60 days and 90 days erode your score in this category faster than water on your sandcastles. Collections are like grenades. And there is no easy fix except time and consistent good payments. The max is around 175 if all your accounts in the past 6-7 years are paid on time. ALL of them. Late payments are weighted (mean more) if they are more recent....and tend to be less destructive as they appear in the past. They "weight" these by looking at each account, seeing the reporting per month and seeing if each month was on time, 30 days late, 60, etc. They are not kidding when they say "pay your accounts on time". At least the minimums. Paying more than minimum does not count here (THAT will come up in the extended credit section if your balances are too high). They only want to see your payment history. Apparently there is no leeway or tolerance in this section. This tells them (creditors) how serious you are in paying your bills.

So out of the 5 sections, each one calculated on their own merits, they add up the results and come up ith your credit score. 350 + (165 + 110 + 67 + 40 + 40) = 772

So I did not walk away with the formula for Coke ...but I did get a general idea about how it all works.

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Bankruptcy seems to reset your "length of credit history" clock to 0 as well. All 3 of the bureaus did that to me, despite the fact that I'd had many fully satisfied, on-time accounts prior to bankruptcy. This little S.N.A.F.U. wiped 10 years off my credit history clock.

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Bankruptcy seems to reset your "length of credit history" clock to 0 as well. All 3 of the bureaus did that to me, despite the fact that I'd had many fully satisfied, on-time accounts prior to bankruptcy. This little S.N.A.F.U. wiped 10 years off my credit history clock.

Join the club. I opened my first credit card account in 1974. That sucker would be 33 years old now. Oh well.

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