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Fico scores and you

June 24, 2008

 

Let’s start with the meaning of FICO.  It stands for Fair Isaac Corporation.  Founded in 1956 by engineer Bill Fair and mathematician Earl Isaac.   It appears that in the 1950’s Mr. Fair and Mr. Isaac developed a credit scoring system for American investments.  They started making their service available by sending out letters to 50 of America’s largest credit grantors.  Ironically, one of their first customers was Conrad Hilton.  Yeah, Paris Hilton’s great grandfather.  I don’t make this stuff up.  As stated on Fair Isaac’s website “Conrad Hilton hires Fair Isaac to design, program and install a complete billing system for one of the first credit cards, Carte Blanche. (1957)”.  You just have to wonder if the remaining family members are as concerned about FICO scores.

I just have to digress again and say that Fair Isaac is a publicly traded company.  It went public in 1986.  (NYSE-FIC)

Anyway, the importance to you is that the FICO score is used by lenders and other creditors to extend credit.  Recently I saw this chart by Countrywide showing the relationship of FICO scores and interest rates.

FICOrateimportance 

The FICO score affects your life.  It has become increasingly important.   It dictates whether or not you get a loan and if you get a loan what kind of interest rate you will receive.  It is a lenders version of the Indian Caste system. Those with a high credit score 760+ will receive a better interest rate than those who have a lower score. 

This small FICO lesson is an important one because if you are a buyer you can see that if your score is low you will be spending more monthly income on a $400,000 home than your neighbor with a good score.  Equally, home sellers can see the challenge many buyers face in affording homes right now.    Due to the lending melt-down, or “sub-prime” problem these scores are given a lot of power. 

What to do?  There are many FREE sites to learn more about your FICO score.  

Here are a few.

Credit.com

CreditTrak 

Equifax

Experian

Transunion

Annual Free Credit report

annualcreditreport.com

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