What To Know About Your FICO Score
Updated June 2, 2018
Your FICO® score plays an important role in your financial health and decisions. Each time you apply for a credit card or loan, your results will be based on your FICO® Score, so understanding your FICO score is key to making any serious financial investments.
The Credit Review will break down everything you need to know about your FICO® score: what it is, the different types of scores, how to improve it, and more.
What is a FICO® Score and why is it important?
Simply put, a FICO® score is a three-digit number used to show lenders how likely you are to pay back your debts.
FICO® stands for the Fair Isaac Corporation. The scores created by them are made by using information from the three major credit bureaus: Experian, Equifax, and TransUnion.
These bureaus use your credit file to create one different FICO® score per bureau. This means that every time the information in each of your credit reports changes, so does your score. Your score can change daily or monthly, depending on how often your creditors report any changes or new activity. Since each credit bureau has different credit information on you, your FICO® score will vary slightly.
So why is your FICO® Score so important? This score is used by around 90% of the top lenders to make any credit-based decisions regarding your interest rate and terms on personal loans, credit cards, auto loans, or a mortgage. It also helps them determine if lending to you is a risk and how likely you are to pay it back.
What are the types of FICO® Scores?
There are actually several types of FICO® scores. FICO® makes regular updates to the algorithm and each time it changes, the scores update to the latest version of FICO®. The most recent version of the score is called FICO 9; however, mortgage lenders use older FICO® scores.
Besides these updated scores, there are other variations of your FICO® score, including:
- Auto FICO® Score: This score determines how likely you are to default on an auto loan or lease.
- Credit Card FICO® Score: This is used to determine how likely you are to default on a credit card.
- Installment Loan FICO® Score: This score is used to determine how likely you are to default on a large installment loan.
- Mortgage FICO® Score: This score is used by lenders to determine how likely you are to default on a mortgage loan.
- Personal Finance FICO® Score: This score determines how likely you are to default on a smaller installment loan.
Like your regular FICO® score, these specific scores are also regularly updated and there are multiple versions.
What is a good FICO® Score?
Since there are many different FICO® scores, the score considered "good" varies greatly. However, the most common FICO® score has a range of 300 to 850 and is normally broken down like this:
- 800+: This is considered an exceptional FICO® score and allows you to have an easy application process to get new credit. Only 1% of consumers with this score are likely to become delinquent. It is also possible to have a perfect FICO® score of 850, which only around 0.5% of consumers have reached. Paying the entirety of your credit cards balances on time and not opening multiple accounts are good first steps to attaining a perfect score.
- 740 to 799: This score is considered to be an excellent FICO® score and well above the average credit score. Consumers with excellent credit generally qualify for lower interest rates on loans and credit cards and only around 2% of consumers with excellent credit will become delinquent.
- 670 to 739: This score is considered a good FICO® score and an average credit score. Around 8% of consumers with a good credit score will default on their payments and become delinquent.
- 580 to 669: This score is considered a fair FICO® score and below the consumer average. Borrowers with this score are more likely to default on their loans, with around 28% becoming delinquent. Being approved for loans and credit become more difficult and those who are approved will have to pay much higher interest rates.
- 579 and below: Anything below 579 is considered a poor FICO® score. This score means you may be rejected for any credit cards and loans you apply for. You may also be required to put down a deposit for credit cards or utilities. Around 61% of consumers with a poor FICO® score will become delinquent at some point in the future.
Some consumers do not even have a FICO® score. In order to generate a score, you must have a certain amount of credit information available and at least one open account that reports to the credit bureaus for at least six months.
As we mentioned earlier, your FICO® score determines whether or not you qualify for loans and credit lines, and the exact number needed to qualify depends on the type of loan you are looking for. Although these are not the exact scores needed, lenders usually look for scores in this range:
- Auto loan: You will need a minimum of 620 to qualify and 740 or higher to receive the best interest rates.
- Mortgage: You will need a minimum of 640 to qualify and 720 or higher to receive the best rates.
- A low-interest credit card: You will need a minimum of 640 to qualify and 720 or higher to receive the best rates.
Lenders may also look at your financial history before making any final decisions on whether or not you are approved for a loan.
For more information on the importance of FICO® scores, read our guide on how a good credit score can change your life.
How are FICO® Scores calculated?
Although there are many different FICO® scores, they are calculated similarly and are usually broken down like this:
- 35% is your payment history. The majority of your score comes down to paying your bills on time. Late payments will damage your score, and the later a payment, the more damage it will do. Late payments also include bankruptcies and any accounts in collections.
- 30% is your amount owed, which is how much debt you have in relation to your available credit. The less debt you owe, the better your score.
- 15% is the length of your credit history, which includes how long you have had credit and the average age of your accounts.
- 10% is new credit in your name. This includes recent applications for credit. A hard inquiry can reduce your score for up to six months.
- 10% is having a mix of credit types. Revolving credit like auto loans, mortgages, and credit cards improve your score.
The same criteria applies to other credit score models, although they are weighted differently. This means your FICO® scores and other credit scores will probably be similar.
Factors that do not contribute to calculating your score include your age, gender, salary, race, religion, nationality, or marital status. However, when it comes to approving an application for credit, lenders may look at your income or job.
How do I check my FICO® Score?
Unlike getting your credit reports (which you can receive annually for free at www.freeannualcreditreport.com for each of the three bureaus), you will have to order your FICO scores through the bureaus, a third party site, or Fair Isaac's site at MyFico.com. FICO®'s website also offer score tracking and goal setting tools.
If you order your FICO® scores at Equifax, Experian, and TransUnion, you will have to pay $19.95 per score and you will only be provided with the score from each individual bureau. Your scores will be different at each bureau since your credit information varies with each bureau.
In the case you acquire your scores through a third party, be sure that you are purchasing your authentic FICO score.
Some banks and credit card issuers (including Bank of America, Citybank, and Discover) provide their customers with one or all monthly FICO scores for free.
What are some other types of scores?
Although FICO® scores are used by around 90% of lenders, there are other scores used to evaluate your credit report in a different way than FICO®.
Another score that is becoming more widely used is VantageScore. This was created by the three major credit bureaus to compete with the FICO® score. They have a similar score range (between 300 and 850) and use payment history as a key aspect in determining the score.
However, VantageScore does have a few notable differences:
- This score does not weigh paid accounts negatively.
- Late mortgage payments impact your credit more than other late payments.
- VantageScore takes natural disasters into consideration if you have been affected by one.
- VantageScore only allows you 14 days to shop for rates, as opposed to 45 days with FICO.
Both your FICO® score and VantageScore may be used by the same lender to determine your preapproval offers and final application approval. However, VantageScore is used more often if you have thin credit history, whereas FICO® is used if you have at least six months of credit history.
TransRisk Credit Score
The TransRisk credit score is based on information provided by TransUnion. This score can only be acquired through Credit Karma.
Unfortunately, the exact information factored into your TransRisk score isn't known. There also aren't many benefits from using this score since it's not used by lenders or creditors. The best use for the TransRisk score is to track your credit over a period of time.
Small businesses can also have their own FICO® scores called FICO® SBSS (FICO® Small Business Scoring Service), which tells financial institutions whether or not they are eligible for a loan.
FICO® SBSS is one of the three main business credit scores and ranges from 0 to 300. Just like your individual FICO® score, the higher the score, the better your credit. It is calculated by combining your personal credit history, business credit history, and other financial information like payments to suppliers and vendors. FICO® SBSS scores are used to prequalify businesses for loan terms and amounts, which can run high as $1 million.
How do I repair a low credit score?
If you are looking to raise your FICO® score to qualify for the best loan terms and interest rates, you have a few options.
First, you can aim to reduce your credit card balances since having a high balance lowers your credit score.
Avoid late payments, which can result in a huge hit against your score. A minimum of six months of on-time payments can raise your score by a few points.
Finally, check your credit report to see if there are any erroneous items that are damaging your score. These include late payments that you paid on time, multiple accounts for the same debt, wrong amount of debt, and incorrect listings. You can dispute these yourself or look to one of our recommended credit repair companies to improve your credit score.
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