Have you ever wondered what happens behind the scenes of the credit score industry? I sit down with Anthony Sprauve from FICO, the big-daddy data collector that created the credit score, to get answers!

The interview was recorded live from the Country Financial Podcast Stage at FINCON 14. According to Anthony, this is quite possibly very first FICO audio interview. Anywhere. Ever.

We hammer out the clear and correct information about FICO and the credit scoring industry:

How FICO is able to capture our data from credit card companies, auto loans, student loans, etc.
The relationship FICO has with the big three credit score bureaus: Experian, Equifax, and Transunion
Which score is the real score?
What is FICO 9 and how will it change someone's score?
Is there an imbalance between evaluating the everyday American's score and someone who doesn't use debt products (Debt Freedom Fighters)?
When will FICO begin using non-debt payments in the credit score?

Steve: Tell us first of all, what is FICO?

Anthony: FICO is the company behind the FICO score, the score used by the vast majority of lenders as part of making a credit lending decision. The FICO score is a mathematical algorithm that is run against the data in a person’s credit history to generate a three digit number. This number is an indicator to the lender of how likely you are to repay a debt.

Steve: Explain the relationship the FICO has with the institutions that upload consumers’ payment data.

Anthony: FICO has created a mathematical algorithm, this algorithm is licensed out to the three credit bureaus (Experian, Equifax, and Transunion). Lenders report a consumer’s payment history to these credit bureaus who in turn run the algorithm against this data to produce a FCIO score. FICO has no direct relationship with lenders in terms of how they report and what they report. FICO just provides the algorithm that the bureaus use.

Steve: What is the advantage of the lenders sending FICO that data?

Anthony: The lenders are inputing data and creating a base that they can tap into to help analyze a future customer’s ability to pay back a loan.

Steve: How is it that FICO can capture the data from a credit card company, student loans, bad medical debt, etc.?

Anthony: The lenders send in a data report every month. This report includes your credit cards, your mortgage, your student loans, your auto loans.... and any other loans. They report on whether or not you paid and if you paid on time.

Steve: How did FICO come about determining what data is collected to be used in creating a score?

Anthony: FICO’s founders engineer Bill Fair and mathematician Earl Isaac had done analysis on a variety of data to determine which data is predictive of someone’s likelihood to repay a debt. Their research showed that a person’s name, address, and sex was not useful. But, data showing how you paid back your previous loans was very useful. We all like to think we are unique but mathematically we are very common. There are consistent trends we can see based on past behavior as a predictor of future behavior.

Steve: What is FICO’s relationship with the three credit bureaus (Experian, Equifax, and Transunion)?

Anthony: We are “frenemies” in the current vernacular. FICO sells a mathematical algorithm to these bureaus, and they use them to create their own credit scores. They each market and sell their own credit score. FICO has a business relationship with them and nothing more.

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Steve: What is the business of these three credit bureaus? I can go to myfico.com or annualcreditscore.com to obtain all three credit scores. Which one is the FICO score?

Anthony: There are multiple FICO scores, one at each bureau. The score that your lender uses will depend on the relationship they have with the bureau. Different lenders use different bureaus,