The most used
credit score system is commonly called FICO score, developed by Fair Isaac
Company. Fair Isaac methodology became public in 1986 and one decade later,
more than eighty per cent of mortgage companies were already using it for
credit decisions. Therefore, credit reports information must come from secure,
reliable and using specific techniques to filter information. These agencies as
it was referred before are bureaus, informational agencies that give credit
profiles or credit history.
This method uses many variables to predict
consumer’s risk and is able to turn it measurable in a scale. The FICO range is
300 to 850.
Do you remember the five major components of
Post 1?
1. 35%: Payment
history
2. 30%: Credit
utilization
3. 15%: Length of
credit history
4. 10%: Types of
credit used
5. 10%: Recent searches for credit
In that range
customers are classified as:
I decided to use this method because it is a Universal
and user friendly framework.
Final Score
=C1*0.35+C2*0.3+C3*0.15+C4*0.10+C5*0.10
Next Post will be about component number 1 –
Payment History and how it affects FICO score.
Additional Information
John
Uizheimer, president of consumer education in U.S A elucidates that “score of
820 to 830 can make you seem unprofitable for the company.” So just 5.7 % of
the population do not represent profit for lenders.
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