How to Understand Fair Isaac Credit Ratings

Everyone has probably heard of Fair Isaac credit ratings. They have been around since 1956 and are used to evaluate risk in creating new loans. However, understanding what they are and how they were developed can be difficult for the average consumer. Below are some ways to understand Fair Isaac credit ratings.

Instructions

Difficulty: Moderate

1. Understand who Fair Isaac is. An engineer named Bill Fair and a mathematician named Earl Isaac are the two people that came up with the idea that better business decisions could be made when they invented the FICO score. Fair Isaac only provides credit ratings and has nothing to do with the accuracy of what is reported on your credit report.
2. Know how a FICO® Score is calculated. The Fair Isaac credit rating breaks down into five general categories and have different percentages of importance. The most important category is the payment history and 35 percent of the score is based upon it. Next is the amounts owed, which carry 30 percent of the score. Length of credit history constitutes 15 percent, while new credit and types of credit take up 10 percent each of the Fair Isaac Credit Rating.
3. Be aware that there are three separate scores. When people say that they have a good credit score, they are usually talking about the FICO which is a Fair Isaac Credit Rating. There are, in fact, three separate FICO scores that were implemented by Fair Isaac, for each of the three major credit reporting bureaus. They all have different names also.
4. Pull you own credit scores before having too many inquiries. There is a rule that all inquiries that happen within a span of 14 days will be considered one. By pulling your own and taking them to the auto or mortgage company, you could prevent an unnecessary pull on your credit report. Authorize inquiries as little as possible to keep from letting your score drop.
5. Check your credit report for accuracy because your Fair Isaac credit rating will be affected. If you find a significant error, report it to the credit reporting bureau and not the Fair Isaac company. Understand that Fair Isaac is not responsible for maintaining or correcting any credit data. Contact Equifax, TransUnion or Experian to investigate any found errors.