FICO is an acronym for Fair Isaac Corporation. The name splices the names of the company's founders, Bill Fair and Earl Isaac. Initially founded to aid in statistical business analysis, FICO is synonymous with credit scoring models used by major reporting bureaus.
The Fair Isaac Corporation was founded in 1956. Fair, an engineer, and Isaac, a mathematician, each invested $400 to start the company. Fair Isaac Corporation's first credit scoring model, used by companies to evaluate the creditworthiness of loan applicants, was introduced in 1958. Starting in 1991, all three of the major U.S. credit reporting bureaus incorporated the FICO model into their credit scoring. Those bureaus are Equifax, TransUnion and Experian.
The FICO scoring model is based on five categories that collectively represent a person's borrowing history, according to the MyFICO website. Payment history is most significant, as it impacts 35 percent of a person's FICO score. Amounts owed, which includes a credit utilization ratio, is 30 percent. This ratio is the amount of debt balances expressed as a percent of available credit, and a high ratio suggests the applicant might be desperate for credit. Length of credit history affects 15 percent of the score. New credit and types of credit each account for 10 percent of the FICO score. A person's score and information from the credit bureaus are useful to lenders when reviewing credit applications.