I recently had the great pleasure and honor to conduct an email interview with Barry Paperno from My Fico. Barry is an expert in the field of credit scoring. My questions were selected from things I personally wondered about, as well as some questions I’ve been asked by readers in the past. Here is the interview in its entirety.
1. What EXACTLY is a “credit score?”
A credit score is a number that summarizes your credit risk based on a snapshot of your credit report as of a particular point in time. The credit score that matters is the “FICO” credit score, developed by Fair Isaac Corporation and most commonly used by lenders, which uses a range of 300-850 with the higher the score, the lower the risk.
2. What are the components of a credit score? (what information is evaluated and how is that information weighted?)
The five main categories of information that FICO scores evaluate, followed by their estimated weights, are:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Types of credit used (10%)
3. Are all credit scores the same?
No – and it’s important consumers know there is a difference. While all credit scores set out to predict future credit risk, there are different companies developing credit scores, with each producing their own proprietary algorithms and different score ranges. FICO scores are the most widely used, with 90 of the top 100 financial institutions, the 25 largest credit card issuers, and the 25 largest auto lenders using them in their lending decisions. Consumers can purchase their FICO scores at My Fico.