FICO Score: How Your Score Is Calculated

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FICO Score: How Your Score Is Calculated

When most of us think of scores, we think of the relatively straightforward systems used in sports or in school tests. You get points (and possibly demerits) for certain actions, behavior, or answers, and those are totaled to determine your scores.

Credit scoring isn’t nearly so easy. Credit scoring models uses “multivariate” formulas. That basically means that the value of any given bit of information in your report might demand on other bits of information.

To understand how this works, let’s use a non credit example. Say that your sister calls you to report that her husband is more than an hour late in coming home from work, and she asks if you think he’s having an affair. To answer the question, you would need to review what you know about this man, including his attitude about his family, his general moral standards, and whether he’s had dalliances in the past. Using all these variables, you could try to predict whether your brother-in-law is likely to be stepping out, or might just have stopped off to buy his wife an anniversary present.

Let’s supposed that your brother-in-law is a stand-up guy. But you’ve personally observed your neighbor in a clinch with a woman who was not his wife. If your neighbor was an hour late in coming home and his wife asked you your opinion of his likely faithfulness, you might reach quite a different conclusion. So the same behavior, coming home late, could evoke two very different predictions based on the information at your disposal.

The number of factors that the FICO formulate evaluate is infinitely greater, so you can see how difficult it can be sometimes to predict the outcomes of certain behaviors.

There’s one thing that’s always true, though: The FICO model is set up to place more value on current behavior. That means that the effect of your old credit troubles lessens over time if you start handling credit more responsibly.

However, the score are also designed to react strongly to any signs that a once good risk might be turning bad. That’s why someone with a good score might suffer more heavily from a late payment.

It’s generally a lot easier to lose points on your score than it is gain them back, which is why it’s so important to know how to improve and protect your score.

Your Credit Score Liz Pulliam Weston

FICO Score: How Your Score Is Calculated

Avoid Bankruptcy and Free Your Debt . Get Refinance Loans , Secured Debt Consolidation or Debt Settlement Advices.