FICO score and credit score: What is a FICO score?

Credit score requirements

FICO score is the type of credit score created by Fair Isaac Corporation (FICO) in 1989. The terms “FICO score” and “credit score” are often used interchangeably, but other score brands exist. 

Credit card issuers and lenders use credit ratings to determine whether your loan application will be approved. 

Calculation of FICO scores

The company applies a proprietary formula to the data in your credit report to produce a score rating. Typically, the details of the three credit reporting agencies (Experian, Equifax, and TransUnion) that generate your credit report are slightly different from each other. Therefore, your rating may vary depending on the service information used. 

What is the range of FICO scores?

Most FICO ratings are between 300 and 850, with higher scores indicating better reputation. FICO also provides industry credit card and auto loan ratings from 250 to 900. 

What is a good FICO rating?

A value between 690 and 719 is considered a good value. When your score reaches 720 or higher, you are generally in the excellent credit rating range. 

Why is FICO score important? What is the use of FICO scores? 

Lenders often use FICO scores to decide whether to approve mortgage loans or credit card applications. This will give financing companies an idea of ​​how borrowers handled loans in the past. More so, they also review other information, such as your income and existing debt, ensuring your financial status for future repayments to reduce the risk of loans. 

Credit scores in the good or excellent range can provide more loan options and access to lower interest rates.

The utility firms and property managers might also use your credit rating to determine your deposit or whether you’ll be accepted as an occupant.

What will affect your FICO score? 

Although FICO will not disclose your scoring formula, it does provide valuable guidance on evaluating various essential factors. For example, you pay on time and maintain a low balance in about two-thirds of the following credit scores: 

  • Payment history (35% of the score): Late payments can affect your account and credit history, just like debt collection or bankruptcy reports.
  • The amount of debt relative to the credit limit (30%) refers to the amount of available credit you are using; the less the value, the better your score.
  • Age of credit (15%): Loan age indicates how long you have credit and the average age of your credit account.
  • Recent loan application (10%): The so-called “hard application inquiry” when applying for a new loan can be deducted from your account for up to six months. 
  • Whether you have more than one type of loan (10%): Both installment loans (equal payments, such as car loans or mortgages) and revolving loans (such as credit cards) can assist you in acquiring a good credit score.

FICO score Vs. Credit score

FICO rating is a type of credit score (VantageScore is another), but you can also have multiple versions of the FICO score. The FICO score of 8, introduced in 2009, is the most widely used, while FICO 9 is the latest. Mortgage lenders usually use an older version of the FICO rating. FICO 10 and FICO 10T are newer versions of FICO. UltraFICO is a unique type, suitable for people unfamiliar with credit or who need to restore their credit. The scale is similar to FICO, but the activity on the deposit account will be used to calculate the points.

FICO vs. VantageScore

VantageScore was jointly developed by the three major credit bureaus and introduced in 2006. FICO is well known to consumers and widely used by lenders; however, VantageScore is becoming more and more popular among consumers and lenders. A study by VantageScore found that from July 2018 to June 2019, its 12.3 billion credit ratings were used by more than 2,500 lenders. 

How do I get FICO points? 

You may have earned free FICO points on your credit card statement. Some credit card issuers, such as Bank of America, provide their customers with free FICO points every month and have doubled down payment to provide everyone with free FICO scores. You can also pay for FICO ratings through the company’s website, especially if you require a new version and other fees offered by a credit card.