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FICO- It’s More than A Scrabble Word

Most people have heard of FICO, but are not familiar with its origin and more importantly, how it's used in your favor or against you when applying for credit. Your FICO score, literally a summary of your credit-worthiness, is used by those you seek credit from for anything from a credit card to applying for a mortgage or car loan. The rules that govern your score going up or down are complicated and sometimes maddening and nonsensical, but non-the-less, can cost you more in monthly payments if you prove to be a late payer or have defaulted on a loan.

FICO was founded in 1956 as Fair, Isaac and Company by engineer William Fair and mathematician Earl Isaac, who had met at the Stanford Research Institute in Menlo Park, California. They came up with a formula to rate the creditworthiness of individual and companies by a scoring system and proposed it to the top 50 lenders of America. Zoom forward, they went public on the NY Stock Exchange in 1986 and the all-purpose FICO score became a part of business for the use of determining the likelihood of a lender being paid back on their loan to an individual or business, with a scoring system from 250-900.

Zooming forward further to today, the FICO company recently released the statistic that after the Great Recession, scores have finally risen above 700 as an average, which is considered to be "good." As of July 2017, this year, some new rules have been set into place. If you had a civil debt or tax lien on your credit history, they will be stripped out, potentially raising your score by as much as 20 points. While helping approximately 7% of the population, the rest of the populace will not see much change- for the better. The negative is, if the new rules make it easier for some to get loans, the banks may eventually raise rates to compensate. It's never easy, and there's always an angle...

It's important for you to keep track of your own FICO score. The higher the score, the lower the loan interest rate when you apply for a car loan or lease, or refinance your mortgage. It can be the difference of hundreds of dollars a month, hence the importance of making sure you pay your payments on time, and don't walk away form a loan obligation. Once your score takes a tick down, it's much harder to get it to rise. Make sure you stay on top of your score- you can get it on the internet in many places. Check it regularly, keep up on what they post, and make sure it stays up and has no untrue postings which can hurt you.

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