Understanding The Complex Rules And Regulations Behind “FICO” Scores

Man reading charts on tablet
Alyssa Guzik
June 20, 2022

The American credit system is confusing and can be difficult to navigate. However, understanding how it works is a necessary step toward financial liberation. 

But what is the basis of American credit? The “FICO” score.


The FICO system was created to give lenders and employers a single metric to get a sense of someone’s ability to handle and control money. It gives everyone a three-digit score, built from information from the three main credit bureaus – Experian, Equifax and TransUnion. 

How do these three factor in?

Each of the major credit bureaus issue a monthly score, and FICO is based on those. 

They raise and lower that score based on five main factors: a person’s payment history, the amount of money they owe, length of their credit history, if they’ve opened new accounts, and the type of credit they use.

The FICO scoring system is used by 90% of lenders to assess a person's creditworthiness. The average Black American has a FICO score of 677, which is generally considered “good,” but not great. 

However, it should be noted that Black Americans have the lowest scores out of all races – due mostly to economic disparities.

The American Credit system is complex and difficult to navigate. By understanding how it works, we can begin to use it to our advantage to increase our access to credit and pursue financial liberation.

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