What is a FICO Score? FICO Score Explained In 2022

What is a FICO Score

Credit Score vs. FICO Score

FICO credit scores are one kind of credit score. Your FICO score is calculated using information from your credit reports.

A FICO score is a three-digit figure that ranges from 300 to 850 and shows lenders how likely a client is to return borrowed money based on their credit history.

What is a FICO score?

One kind of credit score is the FICO score.

The FICO score was developed in 1989 by the Fair Isaac Corp., thus the name. Although the phrases “credit score” and “FICO score” are sometimes used interchangeably, there are different types of scores.

What is the range of FICO scores?

Most FICO scores vary from 300 to 850, with a higher number indicating better credit.

FICO also provides industry-specific credit card and auto loan ratings ranging from 250 to 900.

How is a FICO score calculated?

To generate a score, the firm uses a secret algorithm to the information in your credit reports.

Frequently, the three credit bureaus that generate your credit reports — Equifax, Experian, and TransUnion — have somewhat different data. As a result, your score may differ depending on which bureau’s data was utilized.

What is a good FICO score?

In general, credit scores ranging from 690 to 719 are considered excellent. However, each lender or credit card company may choose what credit score is required to qualify for a certain line of credit.

A decent score, according to the FICO business, is 670-739.

Why is a FICO score important? What is a FICO score used for?

Creditors sometimes utilize FICO scores when deciding whether to accept a loan or credit card application. It provides them an idea of how you’ve dealt with credit in the past. They will also look at other facts, like your income and previous debt responsibilities, to determine whether you are able to repay them.

A strong or exceptional credit score might provide you with additional options and access to reduced interest rates.

Utility providers and/or landlords may also use your credit score to calculate your deposit or whether you’ll be approved as a renter.

What affects your FICO score?

FICO Score Factors

While FICO does not publish its scoring algorithm, it does provide important guidance on the elements that affect scores. Paying on time and keeping balances low, as you can see, account for almost two-thirds of your score:

Payment history (35%): Late payments, accounts in collections, and bankruptcy may all have a negative impact on your score.

Amount of debt in relation to credit limits (30%): This is the percentage of your available credit that you are utilizing – the lower the percentage, the better your credit score.

Credit age (15%): This relates to the length of time you’ve had credit and the average age of your credit accounts.

Credit applications received recently (10%): When you apply for new credit, a “hard inquiry” might lower your score for up to six months. That is why, before applying for a credit card, it is important to investigate the available options and eligibility conditions.

Whether or if you have more than one type of credit (10%): Having installment loans (those with fixed payments, such as a car loan or mortgage) as well as revolving credit (such as a credit card) might enhance your credit score.

FICO score vs. credit score

FICO scores are one sort of credit score (VantageScore is another), however, a FICO score may have numerous variations. FICO 8, which was released in 2009, is the most extensively used, while FICO 9 is the most recent. Mortgage lenders often utilize considerably older versions of the FICO score. FICO 10 and FICO 10T are the most recent versions of the FICO.

Another recent form is UltraFICO, which is intended for persons who are new to credit or are wanting to rehabilitate credit. It employs the same 300-850 scale as FICO, but it calculates a score based on activity in deposit accounts.

FICO vs. VantageScore

VantageScore was released in 2006 after being created collaboratively by the three main credit agencies. Consumers are familiar with FICO, which is commonly utilized by lenders; however, VantageScore is gaining favor with both consumers and lenders. According to a VantageScore research, more than 2,500 lenders utilized 12.3 billion of its credit scores between July 2018 and June 2019.

According to FICO, it is utilized in at least 90% of lending decisions, and it is mandated by law in one critical area: house mortgages. It is currently the only credit risk assessment instrument permitted for use by government-sponsored businesses such as Fannie Mae and Freddie Mac.

The scores may be used in conjunction with one another. A financial institution may utilize VantageScore to identify which customers should get preapproval offers before using FICO scores to determine which applications are accepted and at what interest rate.

How do I get a FICO score?

On your credit card statement, you may already have access to a free FICO score. Some credit card companies, such as Bank of America, provide free FICO scores to consumers on a monthly basis, while Discover has gone a step further and made FICO scores available to anybody.

You may also pay to receive a FICO score on the company’s website, especially if you want a version different than the free ones provided by a credit card.

Many personal finance websites, like CreditKarma, provide a free VantageScore credit score, which is FICO’s major rival. This provides you with another way to keep track of your score: VantageScores tend to trend closely to FICO scores since they consider many of the same characteristics and utilize the same credit bureau data.

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