Fickle FICO - What's a Credit Score?

Back in 1956, and engineer, William Fair, and a mathematician, Earl Isaac created the Fair Isaac Company to sell data analytics to businesses. Two years later, they created a credit scoring system. This is the birth of FICO. Starting in 1989, FICO became a numerical score with a range between 300 to 850. Lenders use this score to assess creditworthiness.

Essentially what a credit score attempts to do is to create a model which assesses a person’s credit behaviors and assign a numerical value. The higher the number, the better the credit. Credit behaviors such as payment timeliness, credit balances and the age of credit items. All of these activities impact a credit score differently.

Certain late payments will ding one’s credit score more than others. For example, a late mortgage payment will reduce a credit score more and for longer than a credit card late payment. A person who is just establishing credit within the last 6 months or so, may be penalized more for a late payment than someone who has a more extensive credit history going back for years.

Inquiries are handled differently as well. Often when shopping for a car or a home, a few credit checks are a normal part of the process. The credit score impact of those inquiries doesn’t impact the credit score as much as multiple credit card applications. Now with the advent of soft credit pulls – such as Simplist uses for preapprovals – a mortgage inquiry has no impact on credit scores.

Now that many banks, credit card providers and account aggregators share your credit score with you, it may be confusing why each has a different score. For one thing, there are now 3 credit reporting agencies. Each with a slightly different model. Another reason is not all credit providers report activity to all three agencies.

There may also be a different score depending on how is requesting the credit report. This is because different credit providers may want different weighting to credit items. A mortgage lender is going to be more interested in a mortgage late payment than any other late payment. A car loan provider may be more interested in car loan activity. A different view of credit activity will impact the score.

Overall, it’s best to pay all payments on time, keep balances as low possible, maintain accounts for a long timeline and minimize new account openings to increase your credit score.