What are FICO Score Odds?

Posted on Credit 794

I’m about to geek out on you so be forewarned.  Have you ever wondered exactly WHAT a FICO® score actually means?  500, 600, 700, 800…what do those numbers mean to lenders?  We know higher is better but it has to be more complicated than that, doesn’t it?  Of course it is.

The operative terms used in the credit industry for this topic are “odds” and “severely delinquent.”  Severe delinquency, as defined by a FICO credit risk score, is a consumer becoming 90 days past due, or more, in the 24 months after the score is calculated.  The “odds” are the likelihood of the consumer paying 90 days or worse in the next 24 months.  That’s called a Performance Definition.

The FICO score range is from 300 to 850; the higher the score is the lower the risk or “odds” of someone missing payments.  In other words, a person with a lower score is more likely to pay bills late, than one with a higher score.  This doesn’t mean that someone with a high score would never be late on payments. It just means the chances are lower of that happening.

This is similar to the odds on a roulette wheel.  The chance of landing on “00” is 35 to 1, which is not very likely; the odds are high and so is the pay out if you bet on it and it actually happens.  The higher the odds are, the less likely the occurrence.

It is the same with credit scores.  The outcome of a FICO score is that the consumer will become 90 days or more late on at least one account within the next two years.  The chance this will happen for someone with a high score is less likely than for someone with a low score.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Leave a Reply