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what is a fico score

When a bank or other lender runs a credit check on you, they will most likely look at your FICO score – the most widely used type of credit score – to determine your creditworthiness. According to the Fair Isaac Corporation, the company that creates the FICO score, “90% of top lenders use FICO scores to help them make billions of credit-related decisions every year.” Your score determines everything from whether a bank approves your for a credit card to your mortgage rate. That makes it important to understand what your score is and how you can keep it in the best shape possible.

What Is a FICO Score?

A credit score is a three-digit number that lenders use to predict whether or not you will be a trustworthy borrower. The most popular one is a FICO score, which is simply a credit score from the Fair Isaac Corporation (FICO). A FICO score ranges from 300 to 850. Higher scores indicate a more trustworthy borrower and lower scores indicate a riskier borrower. FICO uses special formulas and algorithms to calculate your score.

How Your FICO Score Is Calculated

Everything starts with a credit report. FICO gets your credit report from one of the three big credit reporting agencies, Experian, Equifax and Transunion (also known as credit bureaus). All of the information that goes into your FICO score comes from these credit reports. Because each credit reporting agency will have slightly different information for you, FICO creates three scores for each consumer.

Once FICO has your credit report, it uses its formula to analyze the information and determine your scores. The exact formula for calculating scores is a secret but we do know that FICO uses five factors to create your score: payment history, amounts owed, length of credit history, credit mix and new credit. It’s also worth noting that personal factors like your ethnicity, age, salary or where you live do not impact your score.

Let’s take a look at the five main factors in your credit score.

1. Payment History – 35% of Your FICO Score

The biggest factor in your score is your history of making credit payments on time. It also illustrates the fact that we don’t know FICO’s exact formula. Payment history makes up over a third of your score but no one knows exactly how much missing a single payment will affect your score. According the myFICO.com, the consumer website of FICO, making a few late payments won’t automatically kill your score. At the same time, making every payment on time won’t give you a perfect score since this is just one factor in your score. Installment payments, like a monthly mortgage payments, factor more in your score than revolving credit payments like credit card bills.

2. The Amounts You Owe – 30% of Your FICO Score

How much do you owe on your accounts in comparison to how much credit you have available to you? This value is also known as your debt-to-credit ratio and your credit utilization ratio. The idea is that you are a riskier borrower if you frequently borrow most or all of the credit available to you. You can help your score by keeping your balances low.

3. Length of Credit History – 15% of Your FICO Score

This factor looks at how old your accounts are and how long it has been since your last payment. You are more likely to have a high score if you have a long credit history. If you have a short credit history (like if you’re just getting your first credit card) then it’s harder for FICO to say that you’re a trustworthy borrower.

4. Your Credit Mix – 10% of Your FICO Score

Your credit mix includes all the different kinds of credit accounts that you have open. For example, you might have a mortgage loan, a couple of credit cards, a consumer finance loan and a retail account. Your credit mix is only a small factor in your FICO score, but it’s more important when there isn’t much other information in your credit reports. In that case, FICO doesn’t have much else to base your score on.

5. New Credit – 10% of Your FICO Score

This factor is designed to give lenders an idea of how you shop for new credit accounts. Did you just open a new account or get a new loan recently? FICO works off the idea that it’s risky behavior to open multiple new accounts in a short amount of time. You could hurt your credit score if you just got a few new lines of credit or if you had many recent inquiries into your credit. Again, this is a relatively small factor but it is important to consider, especially right before you apply for a mortgage or big loan.

What Is a Good FICO Score?

FICO scores are measured on a scale from 300 to 850. Here are the FICO score ranges and their corresponding labels.

FICO Score Ranges
FICO Score Category
300-579 Very Poor Credit
580-669 Fair Credit
670-739 Good Credit
740-799 Very Good Credit
800-850 Exceptional Credit

Individuals with very poor and fair scores will have a harder time getting credit cards or loans. If they are accepted, they will likely get higher interest rates. Individuals with very good and excellent scores are seen as unlikely to become delinquent. They are more likely to have their credit applications approved and they are more likely to get the best interest rates.

However, the most important part of your score is not the exact number. The number changes every time you get a new credit card bill and it varies based on the credit bureau running your report. Your goal should be to maintain your score in a certain range. Many lenders consider their borrowers based simply on the range of their score. Someone with a FICO score of 760 is unlikely to get a different rate from someone with a score of 770.

So if you have poor credit, focus on moving your score higher but there isn’t necessarily a certain number that you should target. Even if you already have a high score, don’t waste your time chasing a perfect score. Focus on maintaining your score in a good range through solid borrowing habits like paying bills on time and in full.

How to Check Your FICO Score

what is a fico score

Loan approval and your interest rates are largely dependent on your FICO score. That makes is important to know your score. Luckily, there are a couple of ways to check your score.

The best way to check your FICO score is to go to myFICO.com. This is FICO’s official FICO website so you know that all the scores will be correct and up to date. The only downside is that you will need to pay a subscription fee in order to see your scores. The fee might be worth it though if you’re rebuilding your credit and want to make sure you stay on track.

Many credit card companies offer free FICO scores to their cardholders. When your score changes, some credit card providers will also provide a couple of reasons for the change. It’s a good idea to check with your credit card provider if you aren’t sure whether they offer a free score.

It important to remember that your FICO score is just one credit score. There are other companies that create their own credit scores. (The most common is the VantageScore, which was created as a joint-venture between the three big credit reporting agencies.) Many of the websites and companies that offer free credit scores do not offer official FICO scores. These other scores use different formulas and may differ from your FICO score by as much as 100 points. Since lenders use your FICO score, it’s important to make sure that you’re checking the right score.

Different Kinds of FICO Scores

FICO creates a standard, general purpose version of its score that any lender can use. When you check your score, this is the one you are most likely to see. This standard score does change occasionally when FICO updates its formula or methodology. The latest version is the FICO score 9. It came out in 2016 but the majority of lenders still use FICO score 8 for their decisions.

Outside of this standard score, FICO creates a few industry-specific scores. These versions are for different lenders or products. For example, there is a version of the FICO score for mortgage lending and another for auto lending. Some of these versions are on a totally different scale than the standard score. FICO’s auto lending score works on a scale of 250 to 900. These other versions of the score are good to note but most lenders will still check your standard FICO score.

The number of different scores reinforces the point that your exact number isn’t the most important thing. Focus instead on keeping your score as high as possible and in a certain range. If you want too check all the different versions of your FICO score, you can find them through myFICO.com (for a fee).

The Bottom Line

What Is a FICO Score?

Your FICO score is a credit score from the the Fair Isaac Corporation, which is also known as FICO. FICO creates its scores using information from the three major credit reporting agencies. Only credit information plays a factor and personal information, like your age, ethnicity, occupation and salary, won’t affect your score. Because each credit reporting agency has slightly different information for each consumer, everyone will have a slightly different score for each agency. The scores will differ slightly but ultimately, your exact number isn’t the most important thing. What you should focus on instead is keeping your score within a high credit score range.

If you’re trying to improve your credit, you can get access to your FICO scores through myFICO.com for a fee. You may also have access to a free a score from your credit card provider or bank.

Tips to Build and Maintain Good Credit

  • The best way improve your credit score is to be a responsible borrower. Pay your bills on time every month. Avoid having debt fall to collection agencies. Don’t run up your credit card bills to astronomical levels.
  • Manage the “amounts owed” percentage of your credit score formula by keeping your debt-to-credit ratio low. Aim to always keep your credit usage to less than 30% per month. Keep in mind that this ratio uses your total available credit. If you have two credit cards and each has a limit of $5,000, then your total available credit is $10,000. For responsible card users, it might be a good idea to find a new credit card in order to increase your total available credit.
  • All the information in your FICO score comes from your credit report. That makes it important to read your credit report and ensure that all the information is correct.

Photo credit: ©iStock.com/cnythzl, ©iStock.com/courtneyk, ©iStock.com/courtneyk

Danielle Klimashousky Danielle Klimashousky is a freelance writer who covers a variety of personal finance topics for SmartAsset. She is an expert on topics including credit cards and home buying. Danielle has a BA in English from Wesleyan University.
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