Featured Stories

Other Pamplin Media Group sites


The anatomy of a FICO score

True Wealth: Judith McGee


If you’ve ever purchased a home, bought or leased an automobile, rented an apartment or applied for a job, you can be assured that someone has checked into your FICO credit score.

But what exactly is FICO, and how did it become the key tool used for measuring how responsible we are about managing our life and finances? Among other things, your score is based on whether or not you pay your bills on time, how much debt you have, how many businesses have recently checked your score, and if you’ve recently opened a bunch of new accounts or applied for more credit cards.

In other words, it knows if you’ve been good or bad, so be good for goodness sake!

When everything is added up, the final score paints a picture that the lender/landlord/employer will use to determine what kind of a risk you may or may not be.

Where did FICO come from?

In 1956 engineer Bill Fair and mathematician Earl Isaac formed Fair Isaac Corporation (FICO) founded on the principle that data, used intelligently, can improve business decisions. A year later, when Conrad Hilton hired FICO to develop software to manage the billing for one of the country’s first credit cards — Carte Blanche — it launched a new system that would evolve into a means of measuring credit scores for the rest of us. The system is based on “predictive analytics,” which means FICO takes certain information and analyzes it to predict what’s likely to happen.

How are the scores weighted and set?

FICO is not a credit-reporting agency. Rather, it uses information provided by one of the three major credit-reporting agencies — Equifax, Experian or TransUnion.

The final score is calculated based on the following breakdown:

Payment history (35 percent)

Debt/amounts owed (30 percent)

Age of credit history (15 percent)

New credit/inquiries (10 percent)

Mix of accounts/types of credit (10 percent)

Remember, each time a request is made for a copy of your credit report, it is noted in your report. If you’ve recently applied for a car loan, filled out new credit card applications, etc., it’s a red flag that can negatively affect your credit score. Why? It means that you are potentially about to incur even more debt than you already have.

FICO can not factor in the following information:

* Medical records (without your consent).

* Age, race, or marital status if the credit request comes from a prospective employer.

* Debts that are more than seven years old.

* Notices of Chapter 11 bankruptcy more than 10 years old.

* Some other pieces of personal information that can vary from one state to another.

Helpful reminders

If you fall behind in your bills, there are services available to assist you in reining in your spending and raising your credit score, although it’s not an overnight fix.

The more vigilant you are in getting your bills paid on time, the better your score will be.

Use caution if co-signing loans or loaning your credit cards. My own granddaughter learned the hard way by co-signing for a boyfriend’s cellphone purchase. It’s a common mistake, and since these contracts are easily misused, co-signers may have to deal with the consequences for up to two years. After the romance was over, she was still trying to clear the problem off her credit report.

Keep tabs on your credit card spending, and when possible, use your debit cards for everyday purchases. That way you are spending money that is available in your account, rather than digging yourself into the bottomless pit of credit card debt.

Monitor your credit scores periodically. Companies can make mistakes, errors can be disputed, and sometimes debt can be forgiven. Check into services that can obtain your reports free of charge, or for a nominal fee.

It’s your credit score. Protect it!

Judith A. McGee is the chair and chief executive officer of McGee Wealth Management Inc., an independent registered investment advisor. She is a co-branch manager of, and offers securities through, Raymond James Financial Services Inc. (member FINRA/SIPC) in Portland. Contact her at 503-597-2222 or Judith@mcgeewm.com, 12455 SW 68th Ave., Portland, 97223.