What is FICO and how does it help my credit score?
FICO is Fair, Isaac and Co., founded by engineer Bill Fair and mathematician Earl Isaac in 1956. It was created to help department stores and gas station chains decide when to extend in-house credit cards to customers. FICO has become the benchmark of the credit score.
FICO is a scoring model which assigns a credit score to each consumer. The credit score is used to determine whether the consumer is a financial risk and worthy of receiving credit. The score is based on a number of factors including consumers’ histories of paying their debts on time, how much of their available credit they use, how many different types of credit they use and whether they have a history of unpaid debts.
FICO has created a new model, FICO 8. This model will allegedly be beneficial to millions of consumers. First, it will go easier on consumers who miss payments on small debts (Under $100) and improve their credit score. Secondly, it will help lenders make better decisions because it is more precise. This new model categorizes consumers into 16 categories. The current model only uses 10 categories.
So far, only Citibank has implemented this new model. The other big financial institutions including Bank of American and Chase Bank have yet to change over. Additionally, Fannie Mae and Freddie Mac have not done so either.
The new FICO scoring model could help millions of consumers improve their credit scores and reduce the amount of money they pay in interest. Most consumers have not noticed a change in their credit score from FICO 8 because major lenders have been slow to switch to the new scoring model. Read more, click here.
Larry SmithConsumer Rights Attorney at SmithMarco, P.C.Larry P. Smith is a consumer attorney and the founder and Managing Partner at SmithMarco, P.C. He has tried dozens of consumer rights cases to verdict and has arbitrated over 700 cases. Additionally, he has amicably resolved over 3,000 consumer fraud, Fair Credit Reporting Act and Fair Debt Collection Practices Act cases via settlement. Mr. Smith has been a guest on multiple radio outlets including WLS and WGN in Chicago providing consumer advice. Mr. Smith also provides leadership and delivers lectures to the National Association of Consumer Advocates, The National Consumer Law Center, and the Chicago Bar Association. Latest posts by Larry Smith (see all)
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