The FICO scoring model on Bankrate.com seems to give a good overall picture of how FICO works. BK is the one area I find confusing. The model gives you a very small penalty if the BK is over three years old. None (or very few) of the the major CC companies will even consider your application if you have a BK, even with 700+ scores. So why do they use scores if they are going to ignore the results? http://www.bankrate.com/brm/fico/calc.asp
The score, for some cards, is just an indicator. In the one to three year timeframe, you're rebuilding your credit. At three years, if you've done your homework, you're at 700 and you're obviously creditworthy. Certain rules come into play, they might be "five years after BK" or never (really, 7 years unless you've included them in your BK). For major purchases, like a home or car, it's possible to sit down and talk w/someone about your credit history. In addition to my BK, I've got anywhere from 2 to 5 tax liens showing up on my CR. Most of them have been updated to show their released status, but it pretty much knocks me out of any automatic approval. A "public record" is not a good thing, even if it says "lien released".
Because it's an industry standard, so banks use it. For unsecured credit cards, there are alot more factors to consider. FICO is just a way to measure ones creditworthiness for all loan products, not just credit-cards, and since so many institutions use the FICO scoring system, it became the de facto standard whether we the consumer like it or not.
For example, AMEX does issue it's blue card to some people with FICO's as low as 650 (wife) but her credit reports are clean with a long established history. I have a 710 FICO but got denied for not only AMEX, but MBNA, Chase, and Citi as well. Why? Because of 1 CH7 BKO filed in 1996, no other derogs present.
