What Is a FICO Credit Score? Demystifying Your Score [Plus Ways to Improve It]  

A FICO score is a type of credit score that helps lenders assess an individual’s creditworthiness. It is the most popular credit scoring system used largely for large loans, such as Mortgages. Its scoring system ranges from 300 to 850. The national average is currently 716 (according to data from FICO) and anything over 670 is generally considered to be a good FICO score. Knowing your FICO score, understanding how it works, and taking steps to improve it are important parts of managing your financial health.

What Is FICO?

Fair Isaac Corporation, commonly known as FICO, is a data analytics company specializing in credit scoring. It offers the most commonly used credit scoring model in the United States, providing lenders with credit scores that help them assess the creditworthiness of borrowers.

What Is a FICO Credit Score?  

A FICO score is a credit score that is calculated by the Fair Isaac Corporation (FICO). It is one of the most widely used credit scoring models in the United States and is used by lenders to evaluate the creditworthiness of borrowers.

A FICO score is a three-digit number that ranges from 300 to 850, with higher scores indicating better creditworthiness. The score is based on the information in an individual’s credit report and is calculated using a complex algorithm that takes into account factors such as payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries.

What Is a FICO 8 Score?

You might have noticed that sometimes your FICO score is referred to as a FICO 8 score. This is because FICO has different scoring models and FICO 8 is the most widely used version of all of the FICO scoring models.

The FICO 8 scoring model uses many of the same factors as its previous version (FICO 7) to calculate credit scores, such as payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries. However, FICO 8 also incorporates some new features that are designed to provide a more accurate assessment of credit risk.

One major change with FICO 8 is the way it treats collections accounts. FICO 8 weighs medical debt less heavily than other types of debt and ignores paid collections accounts. This means that individuals with medical debt or collections accounts that have been paid off may see a slight increase in their FICO 8 score compared to earlier versions of the FICO model.

FICO vs Credit Score 

FICO score is actually one type of credit score. The term “credit score” refers to any numerical rating that is assigned to an individual based on their credit history, while “FICO score” specifically refers to credit scores calculated using the FICO scoring model.

FICO vs Transunion vs Experian vs Equifax 

FICO is not the only credit score. There are many different types of credit scores, each with its own algorithms, criteria, and ranges. While different credit scoring models may vary in their exact calculation methods, they generally consider similar factors when evaluating a borrower’s creditworthiness, such as payment history, credit utilization, length of credit history, types of credit, and recent credit inquiries.

In addition to FICO scores, the other leading credit scoring models are:

• Equifax
• Experian
• TransUnion
• VantageScore

Keep in mind that FICO scores are the most widely used credit scores in the U.S., so when people refer to “credit scores” in general, they’re often referring specifically to FICO scores.

What Is a FICO Credit Score Used For? 

FICO scores are used by lenders to assess the risk of lending to a borrower. A higher FICO score generally indicates that a borrower is more likely to repay their debts on time and is considered to be a lower risk to lenders. This can result in better interest rates and terms on credit products like loans, credit cards, and mortgages.

Why Is a FICO Score Important? 

FICO scores are frequently utilized by creditors to assess a loan or credit card application. It offers an idea of your credit management history. They also review additional details like your income and current debts to determine your capability to pay back the loan. Having a good or excellent score can result in more alternatives and lower interest rates.

What Is a Good FICO Credit Score? 

A good FICO credit score is generally considered anything above 670. However, in the world of lending, “good” isn’t always good enough. In many instances, you’ll need a “very good” or “excellent” credit score to get approved for a loan or one of the best rewards credit cards.

What are the FICO score ranges?

Every FICO credit score falls within one of five FICO score ranges between 300 and 850. These rankings are designed to help lenders understand whether you are likely to use credit responsibly or whether you are likely to be a credit risk.

Here are the five categories of FICO scores:

• 800-850: Exceptional — Your credit score is excellent, which means lenders see you as a responsible borrower and are more likely to offer you attractive interest rates and favorable loan terms.
• 740-799: Very good — With this type of score, you are considered a responsible borrower, which means you will likely get approved for hard-to-get credit cards, as well as lower interest rates on credit cards and loans (i.e., mortgages, auto loans, personal loans).
• 670-739: Good — Based on your credit record, you have an average credit score similar to the national average. You have successfully managed credit accounts in the past without any defaults. Lenders are likely to approve your credit applications, though they may not provide the most favorable interest rates.
• 580-669: Fair — Based on your below-average score, it appears that you may be considered a credit risk. This could make it harder for you to be approved for new credit accounts.
• 300-579: Poor — Your credit score is a big red flag to lends as it indicates that you may not be able to handle credit responsibly.

5 Factors Impact Your FICO Credit Score 

The credit score provided by FICO is determined using information from your credit reports from Experian, Equifax, and TransUnion. FICO uses this to determine your three-digit FICO credit score based on five factors: your payment history, how much money you owe lenders, how long you have had credit, and which types of credit you have (e.g., credit cards, mortgages, and loans).

Here are the five factors that impact your FICO score:

• Payment history: 35% —  First and foremost, creditors want to see that you pay your payments on time. This is the single most important factor in determining your credit score because it is the reason for credit scores in general: to determine whether or not lending you money (or credit) is risky.
• Amounts owed: 30% — Also referred to as your credit utilization ratio, this is the amount of money you owe compared to the amount you have available to you.
• Length of credit history: 15% — The longer you’ve been using credit, the better. Lenders want to see that you have a history of using credit as means of gauging your creditworthiness.
• Credit mix: 10% — Having a variety of types of credit accounts, such as revolving credit (e.g., credit cards) and installment loans (e.g., auto loan) can help show lends that no matter what type of payment you have, you pay your bills.
• New credit: 10% — Lastly, your credit score factors in the number of hard credit inquiries on your account. Reason being, this tells lends how often you try to get new loans and credit.

How To Get a Free FICO Score [3 Different Methods]

You never need to pay to see your FICO score as there are a number of legitimate ways to get your FICO score for free. For example, credit card issues typically give users access to their credit score, as well as credit monitoring services (i.e., Experian’s free credit monitoring service), and personal finance apps (i.e., myFICO).

Here are the different ways to get your FICO score for free: 

• Banks and credit card issuers — These providers often offer access to free credit scores via your online account or banking portal. Check with your bank and credit card issuer for more information.
• Credit monitoring services — There are a number of free credit monitoring services that provide your FICO score for free. For example, Experian’s free credit monitoring service.
• Personal finance apps — Some personal finance apps, such as Mint and Credit Karma, offer free credit scores. However, neither of these offers a free FICO score. On the other hand the app, myFICO does provide FICO scores. However, it is only available for free during its initial free trial period.

Ways To Improve Your FICO Score 

Improving your FICO score can be a difficult task, but it is possible. There are several steps you can take to help increase your credit score. These include ensuring that all of your payments are made on time, reducing the amount of money you owe lenders, maintaining a long credit history with diverse types of accounts, limiting the number of hard inquiries on your account, and using personal finance apps to monitor progress. 

Here are the top ways to improve your FICO score:

1. Pay your bills on time — Payment history is one of the most important factors that goes into calculating your FICO score, so it’s crucial to make sure that you pay all of your bills on time. This includes credit card bills, loan payments, and any other bills that you may have.
2. Keep your credit utilization low — Your credit utilization ratio is the amount of credit you are using compared to the amount of credit available to you. A high credit utilization ratio can negatively impact your FICO score. To improve your score, aim to keep your credit utilization below 30% of your total available credit.
3. Don’t close old credit accounts — The length of your credit history is another important factor that goes into calculating your FICO score. Closing old credit accounts can shorten your credit history, which can negatively impact your score. Additionally, the more credit lines you have open, the higher your credit limit is. In return, this helps decrease your credit utilization ratio.
4. Avoid opening too many new accounts — Opening too many new credit accounts in a short period of time can be a red flag to lenders and may negatively impact your FICO score. It’s important to be strategic and only open new accounts when necessary.
5. Monitor your credit report — Regularly checking your credit report can help you identify errors or inaccuracies that may be negatively impacting your FICO score. If you spot any errors, you can dispute them with the credit reporting agency to have them corrected.
6. Be patient — Improving your FICO score takes time, and there are no quick fixes. However, by following these tips and being consistent with your credit management habits, you can gradually improve your score over time.

Bottom Line

Overall, understanding what is a FICO score and how to improve it can help you make better financial decisions and be in control of your credit. With the right knowledge and strategy, anyone can increase their FICO score over time and enjoy the benefits of having good credit. It’s important to remember that improving your score takes time and patience, but with dedication, it’s possible to achieve your goals.

Frequently Asked Questions (FAQs)