Do you know Fair Isaac? The Fair Isaac Company is the creator of the FICO score – that little three-digit number that monitors your ability to get a decent interest rate on your credit cards, home loans or car loans. It also affects your ability to get auto insurance, home insurance, and even to get a job. How can it be?

The Fair Isaac Company was founded in 1956 to provide data to help companies make smarter decisions. In 1995, Fannie Mae and Freddie Mac gave FICO scores a major credibility boost when they recommended that lenders use FICO scores to qualify home loan applicants. Imagine having no idea why your loan was turned down, except that something called a FICO score wasn’t good enough. It wasn’t until recently that the Fair Isaac Company was willing to share the main categories they use to calculate their score. The exact formula used to calculate your credit score is still a closely guarded secret. However, thanks to Internet lenders who in the early 2000s published some of the FICO guidelines in response to public outcry over secrecy, Congress eventually made it into law that people should have access to their scores.

More than 65% of lenders now use FICO scores to make sure they’ll be able to get back the money they borrowed. If there’s even the slightest chance you’ll pay late or default on your loan, those lenders will raise your interest rates or even deny you credit. In the next series of articles, I’ll cover the five factors that affect your credit score: payment history, amounts owed, length of credit history, new credit, and types of credit.

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