What Is This FICO Thing Anyway?
The easiest way to think about the FICO is that it's a combined score, pulling together varied facts from a credit report, which projects how safe a bet you are as a borrower. While your employment history and income are factored in, the FICO score is central to the loan decisions made by virtually all consumer lenders.
The FICO formula is mind-bogglingly complex, the kind of math that turns PhDs grey. This formula takes scores of credit report data points into account, throws them into a statistical Cuisinart, and spits out a three digit figure between 400 and 850.
The score that results is supposed to offer a good guess as to how likely you are to default on the loan within the first two years. If you have a combined FICO score between 550 and 599, for example, you allegedly have a 52 percent chance of defaulting. (see below)
From a consumer standpoint, the FICO score is actually friendlier than a credit report. While credit report information more or less sits there for seven to 10 years, FICO scores can change comparatively quickly. "The further away you are from [an adverse event], the less impact it has on your score," says FairIsaac spokesman Ryan Sjoblad.
