It seems that there’s quite a bit of misunderstanding about FICO scores and how lenders use them.
Some people have come to believe that “their” score says everything about who they are – as if that one number summed them up and defined them, for better or worse.
That simply is not true! Nobody is “just a number”. Good lenders don’t see people that way and people shouldn’t look at themselves that way either.
So, what is a FICO score? Basically, it’s a patented product of the Fair Isaac Corporation – FICO comes from the F in “Fair”, the I in “Isaac” and CO from “Corporation”. Fair Isaac has an algorithm that lets them assess a person’s credit history (based on information from the three reporting agencies) and then assign a number – the FICO Score – that represents how likely that person is to pay their bills and debts. That’s all a FICO score is.
To complicate matters a bit, a person’s FICO score can vary. And that drives some people crazy. They can’t see Fair Isaac’s algorithm and they feel they’re being judged harshly by something hidden and mysterious. Some get a little bit obsessed.
But slight variations in your FICO score are perfectly normal – like a baseball player’s batting average or a person’s weight if they weigh themselves every day. Unless something drastic and unusual has occurred, the range will usually be consistent. (And FICO scores can easily vary from 30 to 50 points, or more!)
Another complication – Fair Isaac offers dozens of scores, so the one an individual is seeing can be different from the one a lender is seeing!
How can there be dozens of FICO scores? Easy! FICO is a for-profit company. The more “flavors” of scores they have to sell, the better for their bottom line. They have FICO scores compiled to address the concerns of mortgage lenders, car dealers, credit card companies and landlords … to name just a few.
So there is no Sums It All Up/One Number for anyone. Which is why a FICO score is just one part of what a thorough lender/landlord will look at.
If you’re curious about your FICO score, Fair Isaac has a free estimator on their web site at myfico.com/fico-credit-score-range-estimator. Ideally, you should take a look at your score at least once a year, even if you’re not planning to apply for credit – if only to keep an eye out for fraud.
Fair Isaac also offers score monitoring/credit monitoring packages at varying price points. As do the dozens of other companies online offering non-FICO scores (sometimes referred to as “FAKO” scores, meaning not from Fair Isaac) from their own algorithms. And the sales pressure can be strong.
Before signing up for any monitoring package, please talk to your banker, CPA or other financial advisor/s. A quick conversation could save you hundreds of dollars a year on a service you simply may not need.
On the whole, the fact that credit scores exist is a good thing for consumers. A credit score provides a quick and objective way to assess how you’re handling your finances. If your FICO score is lower than you’d like, you can work to improve it over time. And your FICO score is portable – meaning even if you’ve lived on the East Coast your whole life, with your whole credit history here, you can move and take your credit score as a kind of “reference” wherever you go.
So you are certainly not a number. But, as with so many things in life, this is one of those areas where making the effort to have a good number can definitely be a plus for you.
Nick Maffeo is the President & CEO of Canton Co-operative Bank in Canton. “Smart About Money” is a regular column he writes for the Canton Citizen. Have a financial question you’d like to ask? Email to info@cantoncoopbank.com.