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If you’re hoping to secure a loan, credit card or mortgage, it’s worth knowing how potential creditors might gauge whether you’re a good fit. One factor in their decision is your FICO score — a three-digit number that reflects your creditworthiness.
Your FICO score paints a picture of your financial behavior, and the higher your score, the better your position as a responsible credit user.
Named after its inventor, the Fair Isaac Corporation, a FICO score is a three-digit number that lenders use to determine your credit risk. In use since 1989, today around 90% of lenders and credit card issuers consider your FICO score before agreeing to extend credit. It’s also used to set the interest rates you’ll pay.
FICO runs data in your credit reports through a proprietary algorithm to calculate your FICO score. And you don’t have just one FICO score: FICO employs multiple models and algorithms to come up with some 50 scores specific to auto loans, credit cards, mortgages and more.
Generally, your FICO score ranges from 300 to 850. The higher your number, the less risk you present to lenders.
FICO the company is focused on “predictive analytics” — a fancy way of saying that it analyzes information to predict how you’re likely to behave. In that way, your FICO score gives lenders insight into whether you’re able to pay bills on time, handle larger lines of credit and keep balances low.
To determine your FICO score, credit reporting agencies consider five main factors:
As you can see in this breakdown, on-time payments and low credit balances account for two-thirds of your FICO score.
When crunching your credit score, FICO assesses a huge range of information. But it excludes:
FICO scores range from a low 300 to a perfect 850. A higher number tells lenders that you’re a less risky borrower, resulting in a higher likelihood of approval, low rates and flexible terms.
Lenders uphold standards that vary across loan types and the company you’re working with, though you can get an idea of how you’re viewed using broad rating categories.
|Rating||How credit issuers see your score||FICO score range|
|Poor||You’re likely to miss payments and face court judgments, insolvency or bankruptcy in the next year.||300–579|
|Fair||You might face a default, bankruptcy or another credit issue in the next 12 months.||580–669|
|Good||You’re less likely to miss a payment, face a judgment against you or declare bankruptcy.||670–739|
|Very good||You’re likely to maintain healthy credit, and you probably won’t run into credit trouble in the next year.||740 and higher|
Each of the three main credit bureaus — Equifax, Experian and TransUnion — keeps a different credit file on you and uses a unique algorithm to calculate your credit score. As a result, your score varies slightly depending on which agency your potential lender uses.
FICO itself also produces different types of FICO scores. They’re industry-specific models for credit cards, car loans and mortgages, some ranging from 250 to 900. If you’re applying for a car loan, your lender may look at the score that reflects your history of making auto loan payments.
Finally, there are a few FICO formulas that pull data from different sources. FICO 8 is the most widely used, but FICO 9 is the newest version. Typically, mortgage lenders lean toward older versions.
To check your credit score for free, take one of these routes:
None of these options will affect your credit score.
Both FICO and VantageScore scoring models are used by the three major credit bureaus, and both produce a score ranging from 300 to 850. But while they consider a lot of the same information, they collect their data differently.
FICO’s formula is based on the credit reports of millions of consumers from the three credit bureaus. It analyzes this data to generate a scoring model. Introduced in 2006, VantageScore, however, was developed by Equifax, Experian and TransUnion themselves. It uses those files to come up with a single formula.
The score you use comes down to your consumer credit history. To get a FICO score, you need a credit history of at least six months and at least one account reported to a credit reporting agency within the past six months.
If you don’t, that’s when VantageScores step in: They’re often given to those who don’t qualify for a FICO credit score thanks to a scant or nonexistent credit history. They require one month of credit history only with one account reported to an agency in the past two years.
Other differences lie in how each model treats factors like late payments. For example, VantageScore penalizes late mortgage payments more harshly than other types of credit. FICO uses a 45-day span for hard inquiries, while VantageScore only focuses on the past 14 days.
Lenders can take advantage of both scores. They might use VantageScore to send out preapproval offers and a FICO score to determine which applications to approve.
Loans are a game of risk. To counter that risk, potential lenders and creditors leverage your FICO score and other tools designed to analyze — and therefore predict — your future financial behavior.
A high FICO score indicates to lenders that you’re responsible with credit, giving you a better chance of securing a loan, credit card or mortgage at strong rates and terms.
To learn more about your credit, read our guide on credit scores.
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