FICO® Score

Debt Term

A FICO® Score is a credit score based on computer algorithms from a company called FICO, formerly Fair Isaac Company. It is the predominant type of credit score for individuals in the US used by 90% of the top US consumer lenders.

There are a few confusing things about FICO® Scores that are explained well by the company at this web site.

There are many different FICO® scores for every individual. That’s confusing! The first reason is that three separate companies collect credit information on you: Equifax, TransUnion and Experian.

Each FICO® Score is based on information the credit bureau keeps on file about you.

In other words, the three companies apply the computer algorithms from FICO to the data they have collected, and since the data may not be the same in each credit bureau, the scores may be slightly different. And, you can expect the scores from each of the three credit bureaus to change over time as more information is collected on your use of personal credit cards, payments on your mortgage, and so forth.

Second, FICO has developed different ways of scoring to assess your risk of default for different types of loans. There’s a different score for auto lending, credit card offers, mortgages, as well as “general purpose” scores. While that might help FICO’s customers, who are assessing credit risk, it’s very confusing for consumers! See this page at myfico.com for more details.

Third, the FICO® Score has a range from a low of 300 to a high of 850. That’s a confusing range! The score was introduced in 1981. The SAT was invented in 1926, and has a range of 200 to 800. It’s speculation, but maybe the SAT score range was an inspiration for the FICO® Score range.

Why FICO® Scores Matter To Your Business

Why are we talking about consumer credit scores on a business financing site? Here are a few scenarios where it matters.

  • You are bootstrapping your company in part by using a second mortgage, a home equity line of credit, or personal credit cards. Your FICO® Score will impact your ability to get that financing. And, using that financing, and your ability to repay it on a timely basis, will impact your FICO® Score.
  • You are applying for business debt but your personal FICO® Score will be one of the factors used to determine whether you get business debt financing, how much and on what terms.
  • You receive a business loan but you have to provide a personal guarantee. This may impact your FICO® Score for future personal financing.

 

Don Gooding

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