If you’ve ever tried to get a loan or applied for a credit card, you’ve likely heard the term “FICO score” mentioned on more than one occasion. However, if you’re just establishing your credit, or if you’ve never really paid attention to your credit in the past, understanding what the FICO is and what it means can be challenging.
This article covers everything about FICO credit scores, including what they are, how they are calculated, the different types of FICO scores, and what they are used for. We also cover some other, less commonly used types of credit scores and how they compare to the FICO.
What is a FICO Credit Score?
The FICO is the most commonly used credit score by lenders to determine whether or not to approve you for a loan or a credit card. The Fair Isaac Corporation gets information from all three credit bureaus (Experian, Equifax, and TransUnion) and uses the information in your credit file to calculate three different FICO scores – one for each credit bureau.
As the information in each credit report changes, your credit scores will change as well. This means your credit score can change month by month or even day by day as your creditors report new activity on your account.
Fair Isaac regularly updates the algorithm they use to calculate your FICO scores. When they do this, they update to a new ‘version’ of the FICO. Currently, the newest version of the FICO is the FICO 9 credit score, which has several changes to how certain items are factored into your credit score. In particular:
- Paid collections no longer have a negative impact on your credit score with a FICO 9 score
- Medical collection accounts have less of a negative impact on your credit score
- Rental history, when reported by your landlord, is now factored into your score – this change can help renters to establish a positive credit history even if they don’t have other forms of credit
What are the Types of FICO Credit Scores?
Beyond the regular changes that happen as the FICO scoring model is updated, there are also several different types of FICO credit scores, each designed to help lenders determine specific kinds of risk. The most common types of FICO credit scores are:
- Auto FICO Credit Score – determines how likely you are to default on an auto loan or lease
- Mortgage FICO Credit Score – determines how likely you are to default on a mortgage loan
- Credit Card FICO Credit Score – determines how likely you are to default on a credit card or store charge card account
- Installment Loan FICO Credit Score – determines how likely you are to default on a large installment loan
- Personal Finance FICO Credit Score – determines how likely you are to default on a smaller installment loan
For all of these different FICO score types, a special set of scores is used which is not on the same scale as the general FICO score. In addition, these scores assess the likelihood that you’ll default in the next two years, but only for their specific focus. For example, an Auto FICO score will only measure the risk of your default on your auto loan, not your mortgage.
To further complicate matters, Fair Isaac also regularly updates these special industry-specific credit scores so that they are more accurate. Like the general FICO score, there are multiple versions of each industry-specific FICO score.
What this means is that a typical person doesn’t just have one or two FICO scores – instead, everyone has dozens of FICO scores. This is one of the many reasons why one lender may decline a credit application while another approves the same application. Different versions of the same FICO score, or the same type of FICO score taken from different credit bureaus will almost always be different.
How Are FICO Credit Scores Calculated?
With so many different FICO credit scores available, it’s essential to do everything possible to maximize these scores across the board. Fortunately, standard FICO scores are calculated using a fairly consistent method from one version to the next. The general breakdown of how your standard FICO credit scores are calculated is as follows:
- Payment History – 35%
- Amounts Owed – 30%
- Length of Credit History – 15%
- New Credit – 10%
- Credit Mix – 10%
As you can see, the vast majority of your credit score boils down to how well you pay your bills, how much debt you carry, and how long you’ve had credit in your name. While the industry-specific scores will weight things a bit differently, these main factors will still be important in calculating your FICO scores.
There are also several factors that Fair Isaac says are never part of the calculations that determine your credit score. These items are not part of calculating your credit score:
Note that lenders may factor in how much money you make, what kind of job you have, or other outside circumstances when it comes to approving your application for credit, but Fair Isaac does not take these into account when calculating your credit score.
How Do I Check My FICO Credit Score?
If you aren’t sure about your credit scores or you are worried about what lenders may find when they check your credit, getting a copy of your credit scores prior to going to a lender can give you piece of mind.
The simplest way to get a copy of your credit scores is to order them. Unlike credit reports, you will have to pay for your credit scores, either through a third-party service or directly through Fair Isaac. We recommend doing directly with Fair Isaac if you need a full overview of the various credit scores. However, if you decide to go the third-party route, make certain the scores you are purchasing are authentic FICO scores and not a different type of credit score.
What’s the Difference Between a FICO Score and a VantageScore?
The VantageScore is a credit score created by the three credit bureaus (Experian, Equifax and TransUnion) to compete with the widely-used FICO score. It has many similarities including using the same score range (300 to 850) and using past payment information to predict the risk of future defaults. However, there are a few key differences, including:
- The VantageScore does not weigh paid collection accounts negatively – the latest version of the FICO also reduces the impact of paid collection accounts, but this new version of the FICO is not widely used at the time of this writing.
- The VantageScore counts late mortgage payments against your credit more than other types of late payments.
- If you are hit by a natural disaster, the VantageScore takes that into consideration
- You have only 14 days to rate shop with a VantageScore – with a FICO, you may have up to 45 days to find the best loan.
Given that roughly 90% of lenders are still using the FICO score, VantageScores aren’t a major player yet. If you need to know for certain whether or not a lender will approve your credit application, check your FICO scores as these are the ones most likely to be used by any creditor you choose.
What’s the Difference Between a FICO Score and a TransRisk Credit Score?
The TransRisk credit score is provided by TransUnion only, and specifically through the Credit Karma website. The algorithm of how the score is calculated and what factors into improving the scores isn’t well-known.
Aside from being freely available to consumers via the Credit Karma website, there is not much benefit to the TransRisk score. It is not used by lenders or creditors, and therefore knowing your score isn’t useful for getting approved. It can, however, help you track the general improvement of your credit over time, so it can be useful as a monitoring aid if nothing else.
What counts as a “good” credit score depends on what you want to do with your good credit. Do you want to be able to get a new home? A $25,000-limit credit card? A $5000 personal loan? For each of these different scenarios, a different FICO score range applies when talking about a good credit score versus a fair one.
That being said, there are some rough and ready guidelines for determining what FICO credit score you need to get approved types of credit:
- For a mortgage – 640 is the minimum to qualify, 720+ gives the best rates
- For a car loan – 620 is basic rate, 740+ gives the best rates
- For a credit card with low interest rates – 640 is the minimum, 720+ gives the best rates
Bear in mind that different lenders may pull your credit score from more than one credit bureau. They may also use more than one version of the FICO to make their decision alongside your personal financial history.
For those reasons, it is useful to shop around for the best rates, particularly when you know your credit scores are close to prime, or super prime rates.
How Do I Fix a Low FICO Credit Score?
If, on the other hand, your FICO credit scores are too low to qualify for the rates you deserve, there are several things you can do to boost your scores:
- Reduce your credit card balances – carrying a high balance can signal significant risk of default and lower your credit scores all around
- Make your payments on time consistently – a six-month history of on-time payments will raise your credit scores by several points
- Remove negative accounts on your credit file – are there late payments that were actually on time? Multiple collection accounts for the same debt? Debt listed as higher than your records indicate? All of these are errors that are lowering your credit scores and getting them removed can help you to qualify for credit sooner rather than later.
Because there are so many different types of FICO credit scores, don’t be discouraged if the numbers on your credit score report aren’t the same as the ones you see in the bank or the auto dealership – just be prepared to keep working at it, and building your credit over time.
If you need help, we can recommend several reputable credit repair companies that are experienced in helping people in all types of situations.