What Is a FICO Score?

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A simple three-digit number can determine whether or not you can finance your next home or car, and it can also stipulate what interest rate you receive. If you’re planning on applying for a mortgage loan, credit card, auto loan or personal loan, continue reading to find out what a FICO score is and how it could affect your creditworthiness.

What Is a FICO Score?

You’ve probably heard the term FICO if you’ve ever applied for credit or a loan. FICO stands for the Fair Isaac Corporation, a leading analytics software company based in San Jose, California.

FICO works with businesses worldwide to help them make better business decisions, produce more company growth, increase profits and satisfy customers. In 1989, the company created what is commonly called the FICO credit score

Lenders use a borrower’s FICO score as one measure of determining whether to extend credit and assessing a borrower’s credit risk. As one of the many factors that more than 90% of U.S. lenders use when making credit decisions, the FICO score is perhaps the most important determiner of extending credit.

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What Makes Up a FICO Score?

what is a fico score

In the FICO scoring model, credit scores are calculated by assessing five factors generated from your credit report:

  • New credit: 10%
  • Credit mix: 10%
  • Length of credit history: 15%
  • Amounts owed: 30%
  • Payment history: 35%

A FICO score considers all of these five factors, not just a couple, and includes both positive and negative information from your credit report.

What Is a Good FICO Score?

The higher your FICO score, the more attractive you are to lending institutions. On the contrary, the lower your score, the more lenders consider you a credit risk. Base FICO credit scores range from 300 to 850. Generally, a FICO score of 700 or above is considered good credit.

Here is Experian’s range of base FICO scores and how they are categorized from poor to exceptional. 

Category Range
Exceptional 800-850
Very Good 740-799
Good 670-739
Fair 580-669
Poor 300-579

 Keep in mind that this is just one model. FICO credit score ranges may differ depending on the bureau or agency reporting. Other bureaus may use the word “excellent” instead of “exceptional” to categorize the highest range of FICO scoring.

A borrower’s final FICO score is calculated by collecting and evaluating data from the borrower’s various credit accounts.

Why FICO Scores Matter

It’s not easy to avoid credit in the U.S., and credit scores seem to affect nearly every area of our lives. If you have a bad credit score, it can be difficult to obtain necessities, such as getting an affordable mortgage loan, getting a good job or renting an apartment.

Having a good, very good or exceptional credit score can make a big difference even after you qualify for a loan, because your interest rates will most likely be lower than if your FICO score is in the poor to fair range.

How To Improve Your FICO Score

If your FICO credit score is lower than 670, you may want to find some ways to boost your score. Here are a few things you can try.

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Avoid Closing Credit Card Accounts

When you close a credit card account, you increase your credit utilization, which is the amount of credit you have used compared to how much credit a lender has extended you on a particular credit card.

Closing a credit card account can potentially reduce the length of your credit history, which could eventually reduce your FICO score. With this in mind, it is advisable to keep your old credit card accounts open.

Pay Your Bills on Time

Consistently making on-time payments sets you up for improving your FICO credit score. Making late payments will surely put you at risk of lowering your score. If necessary, set up automatic bill payments to avoid making late payments and their associated fees.

Reduce Your Credit Utilization Ratio

There are some relatively easy ways to reduce your credit utilization ratio:

  • Pay off your credit cards.
  • Request a credit limit increase from your credit card company.
  • Use your credit cards less to reduce your spending.

FICO Scores vs. Other Credit Scores

You may be surprised to know that the FICO score is only one of many credit-scoring models that lenders use to evaluate a credit applicant. However, the FICO credit score is the most widely used.

Why are there different credit score models? Credit scores are based on different credit reports issued by the three major credit bureaus — Experian, Equifax and TransUnion  — so each of these reports can result in different credit scores.

Good To Know

Your FICO score could change for various reasons. As new information is added to your credit report, it’s common for your score to fluctuate throughout any given month.

Some specific events that could cause your FICO score to change include making a late payment, establishing a new collection account, paying down a credit card balance and paying off a loan.

FICO Score FAQ

Here are the answers to some commonly asked questions about FICO scores.
  • Where can I find my FICO score?
    • Lenders report borrowers' credit history to all of the major credit bureaus — Experian, Equifax and TransUnion. You can visit their websites to access your FICO scores as well as your full credit report. To make it easier, you can visit AnnualCreditReport.com to request your credit reports for free. You may have to pay a nominal fee to see your FICO credit scores.
  • Besides my FICO score, what other factors do lenders consider when deciding whether and how much money to lend to me?
    • When deciding to lend money to borrowers, financial institutions may consider other information included on your credit application, such as your current salary, household expenses and the amount of funds currently in your savings and checking accounts.
  • What if I don't have a FICO credit score?
    • If your credit report doesn't contain enough information, then your FICO score cannot be determined. If you have no FICO score, you may have to establish a new account or add activity to your credit report and start building credit. To have a FICO score, you need at minimum:
      • — A credit account that has been active within the last six months
      • — A credit account that is at least six months old
  • What is the minimum FICO score I need to buy a home?
    • The minimum FICO score you need to qualify for a home mortgage loan depends on the type of mortgage you need. Here are some common types of mortgage loans and the current minimum FICO score required:
      • — Conventional: 620
      • — FHA loan with 3.5% down payment: 580
      • — FHA loan with 10% down payment: 500 to 580
      • — VA loan: 580

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Kathy Evans is a personal finance freelance writer and entrepreneur with a technical writing and instructional systems design background. She holds an MS in technical writing and informational design and is currently a doctoral student in instructional technology at Towson University. Through work experience in the federal government as well as commercial and nonprofit industries, she has focused her freelance writing on finance, investing and economic content with a specialization in budget coaching.  

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