What is a FICO score?
Key takeaways
- FICO scores are the most widely used type of credit score.
- Most FICO scores range from 350 to 850, and a score of 670 or higher is considered good.
- If your FICO score is on the low side, you can take steps to improve it.
Your credit score is a three-digit number that helps potential lenders predict how likely you are to repay money as agreed. A high score can help you reach your financial goals, whether that’s getting a new credit card or buying a home, while a low credit score can hold you back.
You may see the terms “credit score” and “FICO score” used interchangeably, but they’re not the same thing. A FICO score is a specific type of credit score, and understanding how it works can help you improve your score and reach your goals.
What FICO scores are
FICO scores are a type of credit score created by Fair, Isaac, and Company (now called the Fair Isaac Corporation or FICO) in 1989. They’re now one of the industry standards for credit scores. According to FICO, these scores are used by 90 percent of top lenders to make credit-related decisions. When you apply for a credit card, mortgage or personal loan, the lender will likely check your FICO score.
A higher FICO score shows lenders that you’re likely to repay debts on time. That can lead to better approval rates, lower interest rates, more favorable loan terms and even better credit card rewards.
FICO score ranges
Most FICO scores range from 300 to 850, with a higher score representing a better credit rating. Scores are classified into five categories: excellent, very good, good, fair and poor. (The FICO Auto Score and Bank Card Score range from 250-900. Those specialty scores may be used when you apply for a car loan or a credit card.)
800-850: Excellent credit score
Earning an excellent credit score shows lenders that you are likely to to repay loans as agreed. If you have a score over 800, lenders are more likely to offer you their best credit products. You can expect favorable loan terms and interest rates.
740-799: Very good credit score
People with a very good credit score are eligible for nearly all of today’s best credit cards. Compared to borrowers with lower scores, you can look forward to lower interest rates on loans and mortgages, resulting in savings over time.
Having very good credit could also open the door to better rental opportunities or lower insurance premiums.
670-739: Good credit score
A score in this range suggests that you can manage debt responsibly. Lenders will likely accept credit card or loan applications from borrowers in this range. However, you may not qualify for the best interest rates and terms, so you can still benefit from improving your credit.
580-669: Fair credit score
Lenders may classify people with scores in this range as “subprime” borrowers. People with fair credit scores may not have as many borrowing options as people with higher scores. You may find you’re not eligible for certain credit cards or mortgages, though the good news is that many lenders will still approve loans with this score.
300-579: Poor credit score
A score in this range is sometimes called “bad credit” because it warns lenders that you may be a risky borrower. You may have trouble getting approved for credit — unless you’re applying for cards specifically designed to help you rebuild your credit. With time, it’s possible to improve your credit score.
How FICO scores are calculated
Your FICO score is calculated based on the information in your credit report. This information is grouped into five categories: payment history, amounts owed, length of credit history, credit mix and new credit. Each category has a specific weight in the FICO formula.
Payment history (35 percent)
Your payment history shows whether you’ve paid your credit cards, retail accounts, installment loans and mortgage loans as agreed. It’s weighted so heavily because it’s a reliable way for lenders to predict whether you’ll repay debts on time. A history of on-time payments helps your score, while late payments, collections accounts and bankruptcies have the opposite effect.
Amounts owed (30 percent)
Your amount owed, or credit utilization ratio, refers to both how much debt you carry in total and the percentage of your available credit you’re using. FICO weighs this category heavily because the amount you owe affects your ability to make all your monthly debt payments on time and avoid overreliance on credit. Using a low percentage of your available credit can improve your score, while using a high percentage can harm your score.
Length of credit history (15 percent)
The length of your credit history refers to how long you’ve had and used credit. The FICO scoring model considers factors like the age of your oldest account and the average age of all your accounts.
FICO says a longer credit history will always have a positive effect on a person’s score — because it shows you have experience managing debt — but you can still have a good credit score with a short credit history.
Credit mix (10 percent)
Your credit mix refers to the various types of credit accounts you have. Credit accounts fall into two main categories: revolving and installment. Revolving accounts include credit cards and home equity lines of credit, while installment accounts include mortgages, car loans and student loans. Having a good mix of account types shows that you can successfully manage different types of debt.
New credit (10 percent)
Your FICO score considers how many new credit accounts you’ve opened, as well as how many of your accounts are recent. Your credit score may drop a few points when you apply for new credit. The impact is fairly short-lived since FICO only considers credit inquiries from the past 12 months. New credit accounts could also improve your score if they help diversify your credit mix.
How lenders use your FICO scores
Lenders use your FICO scores to quickly and objectively determine the risk of offering you credit. A higher FICO score shows you’re more likely to repay money as agreed, so the lender may be willing to offer a higher credit limit or lower interest rate. A lower score, on the other hand, warns lenders that you could be a higher-risk borrower.
Other potential creditors, such as landlords, cell phone providers and utility companies, also use FICO scores to assess the risk that you won’t pay on time. People with low FICO scores may have trouble entering into contracts or be required to pay a security deposit.
The different FICO versions
You have more than one FICO score. There are multiple versions of FICO scores available, as well as industry-specific scores. The models share a similar foundation, so if one FICO score is high, your other FICO scores will likely be high.
Changes with newer FICO versions
The most widely used version is FICO Score 8, though some lenders have upgraded to the company’s newer models, such as FICO Score 9 or FICO Score 10 or 10T.
FICO Score 9 ignores third-party collection accounts that have been paid off. This version will consider rental history (if it’s reported) and doesn’t factor in unpaid medical collections as heavily as prior versions.
FICO Score 10 puts more weight on late payments and credit utilization. FICO Score 10T considers trended data to measure how well you’ve managed your accounts over time.
Industry-specific FICO scores
The base FICO scores are designed to estimate how well a person can manage any type of credit product, whether it’s a mortgage or a credit card. There are also industry-specific FICO scores that reflect how well you’ll manage a specific credit product.
For example, if you’re refinancing a car loan, a lender might check your FICO Auto Score. If you’re applying for a credit card, a lender may check your FICO Bankcard Score.
FICO vs. VantageScore
FICO is not the only service that provides credit scores. VantageScore is another common credit scoring model, which the three credit reporting bureaus created as an alternative to the FICO score.
Like FICO, VantageScore assigns consumers a credit score between 300 and 850 based on the information in their credit reports. In the VantageScore model, a score of 781 or higher is considered excellent. Your FICO score and VantageScore will likely vary because VantageScore considers different scoring factors and weighs them differently.
VantageScore 4.0 uses the following formula:
- Payment history: 41 percent
- Credit utilization: 20 percent
- Credit history and credit mix: 20 percent
- Credit balances: 6 percent
- Credit applications: 11 percent
- Available credit: 2 percent
How to improve your FICO score
If your FICO score is lower than you’d like, it’s possible to improve or rebuild your score over time. Here are some tips to start improving your score:
- Fix errors on your credit report: Many people have errors on their credit reports. Errors can include incorrect credit limits, accounts that belong to someone else or negative marks that should have already fallen off the report. Contact the credit bureaus or work with a credit repair company to get the errors fixed.
- Keep your credit card balances low: The FICO model weighs the amount you owe heavily. To improve your score, pay down outstanding debt and aim to keep your credit utilization ratio at 30 percent or lower.
- Make payments on time: Since your payment history makes up 35 percent of your FICO score, making payments on time, every time is crucial for building a good credit history.
Next steps
Achieving a good FICO score can be an important part of reaching your financial goals and getting the credit cards, car loans and mortgages you need. To start your credit repair journey, check your FICO score to find out where you stand. Then, focus on managing credit responsibly and keeping your credit report free of errors to get your score moving in the right direction.
