About the Credit Score

Most Americans are already familiar with the FICO® score, which is a proprietary measure of risk of default developed by the Fair Isaac Corporation. The score takes into account various factors in a person’s financial history. The FICO® model is used by the vast majority of banks and credit grantors, and is based on the consumer credit files of the three national credit bureaus. Although the exact formulas for calculating credit scores are secret, FICO® has disclosed the following components:

  1. payment history – 35 % of the score
  2. amount owed – 30% of the score
  3. length of credit history – 15% of the score
  4. new credit – 10% of the score
  5. type of credit used – 10% of the score

The Default Committee has endeavored to develop a similar credit score for the Federal Government. The initial score has been developed as follows:

  • The first factor is based on any delinquencies in payments. In this case, the federal government’s record has recently been late on schedule payments as a result of extraordinary measures that were implemented prior to the suspension is debt limit. Score of 5, where 1 is dismal and 10 is near perfect or perfect.
  • The second factor looks at the total amount of debt owed. Score of 2 out of 10.
  • The third factor looks at how long properly honored borrowing has been followed. Score of 9 out of 10.
  • The fourth factor looks at often new credit has been sought. This calculation is grounded in the assumption that constant applications for new credit is a sign of financial stress. Score of 2 out of 10.
  • The final factor looks at whether there is a wide variety of credit that has been sought. This calculation is grounded in the assumption that a wide variety of credit types is sign of higher financial risk. Score of 3 out of 10.

On the basis of the component scores applied above, accounting for weighting of the component scores in calculating the total score is as follows:

5 @ 35% = 1.75
2 @ 30% = 0.60
9 @ 15% = 1.35
2 @ 10% = 0.20
3 @ 10% = 0.30

Total = 4.2 out of 10

A typical credit score range is from 300 to 850 with the following credit rating categories:

Excellent 800-850
Very good 740-799
Good 670-739
Fair 580-669
Poor 520-579
Very poor 300-519

Based on a combined component score of 42%, that would put the federal government’s credit rating at 531, which is in the “Poor” range.