Fico and Rating Agencies
06/12/2012
FICO and Rating Agencies
Current Issues in Business
by
Jeen Filz
FICO 3 How does FICO work? 3 Criticism 4 rating agencies 6 history 6 Quick reminder of the financial crisis 7 Role of the rating agencies 8 Their impact 10 Perspectives 11
FICO
How does FICO work?
FICO is a public company that was found in the year 1956 with the aim to help financial services companies by measuring credit risk in a score which is called the FICO score. This stands for Fair Isaac Corporation mainly used in the United States and Canada by lenders and others to assess the credit risks of prospective borrowers or existing customers.
Here a three digit number between 300 and 850 is being given to each person that wants a review and a summary of their credit risk. After having calculated this through using several personal files concerning the particular individual, the personal data is collected and this information is split into five categories:
1. Payment history
2. Length of credit history
3. Amounts owned
4. New credit
5. Types of credit used
These five parts concern payment history; how much credit you have used, how long you have had using credit, the type of credit that you had and the most recent applications for a credit. The FICO score of a person can improve if it has been paid on time, but can be a major impediment in acquiring a loan if payments if in the past they have not made payments on time. This part counts for around 35% of the total score and is one of the most important ones in allowing the person to obtain a loan. Around 30% percent of the FICO score is determined by how much credit you have used as well as the type of credit you have had. A person that has applied for several credit cards in a short period of time will be perceived as less reliable and the score will be negatively affected. The period of how ownership of a credit account counts for around 15% percent of the FICO score. Here the longer you
FICO and Rating Agencies
Current Issues in Business
by
Jeen Filz
FICO 3 How does FICO work? 3 Criticism 4 rating agencies 6 history 6 Quick reminder of the financial crisis 7 Role of the rating agencies 8 Their impact 10 Perspectives 11
FICO
How does FICO work?
FICO is a public company that was found in the year 1956 with the aim to help financial services companies by measuring credit risk in a score which is called the FICO score. This stands for Fair Isaac Corporation mainly used in the United States and Canada by lenders and others to assess the credit risks of prospective borrowers or existing customers.
Here a three digit number between 300 and 850 is being given to each person that wants a review and a summary of their credit risk. After having calculated this through using several personal files concerning the particular individual, the personal data is collected and this information is split into five categories:
1. Payment history
2. Length of credit history
3. Amounts owned
4. New credit
5. Types of credit used
These five parts concern payment history; how much credit you have used, how long you have had using credit, the type of credit that you had and the most recent applications for a credit. The FICO score of a person can improve if it has been paid on time, but can be a major impediment in acquiring a loan if payments if in the past they have not made payments on time. This part counts for around 35% of the total score and is one of the most important ones in allowing the person to obtain a loan. Around 30% percent of the FICO score is determined by how much credit you have used as well as the type of credit you have had. A person that has applied for several credit cards in a short period of time will be perceived as less reliable and the score will be negatively affected. The period of how ownership of a credit account counts for around 15% percent of the FICO score. Here the longer you