A "FICO score" is a credit score developed by Fair Isaac & Co. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. Because it was the first a person's credit score is usually referred to, incorrectly, as a "FICO Score". When someone says "FICO score" they usually are referring to a "credit score".
Since "F"air, "I"ssac & "Co". developed the "FICO" system, there are now 3 scores from 3 different bureaus –– Experian, Trans Union and Equifax. Each bureau has its own proprietary scoring system.
Each credit score system calculates a unique scoring number by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Since each credit company has 1) a different proprietary formula and 2) sometimes collects different info on a borrow, each company computes a unique score. In general, developing these scoring models involves studying how thousands, even millions, of people have used credit. Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.
People refer to "FICO score" the same way that people use the word "Klennex" for any tissue or "xerox" for any copy system.
In the financing industry, some lenders prefer one score over the other two, while most lenders prefer to use the "middle score" of the three (the score which has a numberical value that not the highest and not the lowest). Sometimes, a bureau may not have enough info on a borrower to be able to generate a score. In these cases, if there are only two scores generated, they will use the lowest. If there is only one score generated, they will use it. However, the most common reason for "no score" is no credit activity. So, not having 3 scores can be detrimental to a person qualifying for credit.
To prequalify a borrower, a lender will sometimes pull one score simply because if it cheaper. One score will generally be an indication of the range of scores that a borrower is likely to get. As a lender approaches the "final qualifying" stage, they will generally pull a "merged" or "3 bureau" credit report, a report that merges the credit reporting from all 3 credit bureaus. Of coure, to be sure that a borrow qualifies, it is best to pull a "merged" or "3 bureau" report right off the bat.
Here are the 3 credit bureauand the names of the scoring system each uses:
1. Experian ("EPN") which gives a "Fair Issaac" score
2. TransUnion Corporation ("TUC") which give an "Emperica" score
3. Equifax ("EFX") which gives a "Beacon" score
Now you know a little about credit scores and how lenders use them.
