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Computerized Investing > May/June 2003

On the Internet: Consumer Credit

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by CI Staff

To gauge what kind of credit risk you may be, lenders employ the FICO score. When seeking consumer credit, many people seem to know their credit score, but few understand how it is calculated. This credit scoring, which results in a number between 300 and 900, is based on a statistical model developed by the Fair Issac Corporation (hence the name FICO score).

The statistical model for the FICO score was not originally set up to be a consumer model, but it was the only available paradigm at the time. So, the banking industry quickly adopted the FICO model to numerically rank consumers. The FICO score is used by the three largest consumer credit agencies: TransUnion, Equifax, and Experian.

The mystery behind the FICO score is how it is calculated. As the Fair Issac Corporation is a for-profit company and publicly traded on the New York Stock Exchange, the FICO score is treated as their product and its method of calculation as a trade secret. However, there are a few Web sites where you can get information on the factors that contribute to your FICO score and education on using credit. These sites are described below, along with what you’ll find at the Web sites of the three main credit agencies.

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