A credit score is a three-digit number that tells lenders how likely you are to pay your credit obligations. A FICO® Score is a type of credit risk score, much like Coca-Cola® is a type of soft drink.
It’s important to understand how your FICO Score and other types of credit scores work. Good credit scores can make your financial life easier to navigate and may help you save money along the way.
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What is a FICO® Score?
A FICO Score is one of the most popular credit scores lenders use in the United States. Fair Isaac Corporation (today known as FICO) introduced the FICO Score in 1989 to standardize credit scores in the lending industry. Prior to the FICO Score, lenders used many different scores to assess creditworthiness — some of which even considered political affiliation and gender.
Today, 90% of top lenders use FICO Scores to measure credit risk. According to the company, it sells 10 billion FICO Scores every year to lenders.
How a FICO Score works
The job of a FICO Score is to predict how likely a consumer is to pay a bill 90 days late (or worse) anytime in the upcoming 24 months. To make that prediction, a FICO scoring model examines your credit report and looks for clues in credit history — how you’ve managed debts in the past and how you’re managing your current credit obligations.
FICO Scores range from 300 to 850. A higher score means you’re less likely to pay late and a lower score means the opposite.
Scoring models break the data on your credit report down into five categories. Each category is worth a portion of your FICO Score, as follows.
- Payment history (35%).
- Amounts owed (30%).
- Length of credit history (15%).
- Credit mix (10%).
- New credit (10%).
As you can see, paying your bills on time is important where your FICO Score is concerned — but isn’t the only factor that matters.
The amount of debt you owe — especially your credit card utilization rate — can also have a significant impact on your FICO Score. Other factors can influence your FICO Score as well, such as the average age of accounts on your credit report (length of credit history), the mixture of account types of your credit report (credit mix), how often you apply for new accounts (new credit) and more.
Why is your FICO Score important?
The majority of top lenders use FICO Scores to guide credit-granting decisions. So, there’s a good chance someone will review a version of your FICO Score when you apply for financing.
Lenders may judge your eligibility (at least in part) to qualify for personal loans, credit cards, lines of credit, and other types of financing based on your FICO Score. Your score can also impact the type of interest rate and borrowing terms a lender offers you(better FICO Scores often lead to more attractive financing options).
In addition to financing applications, there are other scenarios where your FICO Score may be used to evaluate you.When you apply to lease an apartment, for example, your FICO Score might come into play. The same is true when you try to open a new mobile phone account or establish utility service.
FICO Score vs. your credit score
Sometimes people will use the terms “FICO Score” and “credit score” as if they’re interchangeable. It’s similar to the concept of calling a tissue a Kleenex® or calling a cola a co*ke®. However, mixing up the terms FICO Score and credit score has the potential to cause problems.
Imagine the following scenario. You’re preparing to apply for a mortgage. Since you know a lender will check all three of your credit reports and scores as part of your loan application, you go online to review your credit information ahead of time.
Upon checking your credit, you discover some issues. However, since the credit scores you see online are all at least 620 (the minimum score you were told you need to buy a house), you think you’ll be fine. What you don’t realize is that the credit scores you’re seeing online are not FICO Scores.
Later, when you apply for a mortgage, the lender pulls a version of your FICO Scores. These scores are lower than the credit scores you reviewed online. You’re disappointed to discover that your credit scores are too low to qualify for a mortgage at this time.
FICO Scores aren’t always lower than the credit scores you might see online. And your FICO Score could vary as well, since there are different versions of the scoring model available for lenders to use.
Nonetheless, the example above provides some insight into the types of situations that could arise when you review a different type of credit score than a lender reviews. In general, the best way to make sure you have good credit scores across the board (whether they’re FICO Scores or something else) is to focus on improving your credit reports and keeping them as healthy as possible. All credit scores are based on the information on your credit reports.
FICO Score vs. VantageScore®
VantageScore® credit scores are another popular type of credit score in the United States. These credit risk scores also feature a range of 300 to 850, and higher scores indicate that you’re more financially responsible.
The three major credit reporting agencies — Equifax, TransUnion, and Experian — introduced VantageScore in 2006. Between 2021 and 2022, over 3,000 companies used 14.5 billion VantageScore credit scores for a variety of purposes (lending and otherwise).
So, even though FICO Scores may be the oldest and the most common choice in consumer lending, it’s worthwhile to pay attention to your VantageScore credit scores, too. And with the recent announcement that mortgage lenders will soon have to incorporate VantageScore credit scores to evaluate home loan applications, these scores will become even more important in the future.
How to get your FICO Score
If you’d like to check a copy of your FICO Score, there are a few different ways to access this information.
- Experian: Experian offers consumers a free copy of their FICO Score 8 (based on their Experian credit report only) once a month.
- Credit card issuer: Many credit card companies provide cardholders with free access to their FICO Score each month as a courtesy.
- MyFICO: You can request copies of your FICO Scores along with your three credit reports at myFICO.com.
Frequently asked questions (FAQs)
Your FICO Score is a three-digit number that indicates how risky of a borrower you are. A higher FICO Score tells lenders there’s a lower likelihood that you’ll become severely delinquent on a credit obligation in the next 24 months.
FICO Scores range from 300-850. According to FICO, a good FICO Score falls between 670-739. FICO Scores between 740-799 are very good. And scores of 800 and above are exceptional.
There’s a good chance a lender will use your FICO Score to assess your eligibility when you apply for financing. Lenders may also use your FICO Score to determine how much you can borrow and how much interest to charge you.
Your credit card issuers might also use your FICO Score on an ongoing basis after approving you for an account to continue to monitor your credit risk. This process is known as account maintenance.
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