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Credit Scoring: The Fickleness of FICO

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The most important aspect of a credit report is credit scoring. Your credit score is a number (usually three digits) that indicates your overall ranking and potential to lenders, creditors, et cetera. The score is created from a mathematical formula developed by the Fair Isaac Corporation, or "FICO score" for short.

For reasons known only to them and the Powers That Be, each credit agency uses its own variant on the FICO score, calculated in essentially the same fashion. Therefore, you can have three or four different credit scores -- a different score with each CRA, and yet another differing score from FICO. The Equifax agency recently entered into a partnership with the FICO site, myFICO.com, to provide the most accurate scoring record possible via their "Score Watch" product, but even their combined score can differ from Equifax's own reported scores.

The scores between FICO and the three agencies can vary widely -- I've seen differences of 25 to 100 points between individual scores. If the notion of a completely random system of mathematical calculations that has no set standard, and is governed by one company only, frightens you, well, it should.

Your credit score can change daily, based on a multitude of factors. Inquiries into your report can raise or lower it, as mentioned earlier. How often you use your credit card, or even if you have one, can impact your score. Being turned down for a loan or credit can cause your score to take a serious dive, particularly if you apply for too many loans or cards in too small a space of time.

If you want to get a rough estimate of your credit score without having to pay through the nose, many of the aforementioned CRA's and consumer sites offer "free scoring estimators" that provide just that -- a rough estimate of your credit score based on the data you input. Keep in mind that these estimators often have pre-selected conditions of data. Bankrate's scoring estimator, for instance, presumes that you already have credit cards and/or loans to pay off, so if you don't, it won't provide you with anything resembling an accurate score.

Next: Credit Knowledge -- A Long, Hard, Struggle

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