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On the surface, credit scores seem pretty simple.

They’re a numerical indicator of your reliability as a borrower, used by lenders to determine the terms of a loan.

A good score is high and a bad score is low.

But when you start to learn how those scores are calculated – and how many companies are doing the calculating – things get a little more complicated.

There are multiple credit scoring models, each with their own algorithm for determining the score assigned to consumers.

The FICO score is the most popular model currently in operation. 

Here’s what you need to know – how the scores are calculated, what constitutes a high score and why your score matters.

What is a FICO Score?

A FICO score refers to the credit score calculated by the Fair Isaac Corporation. The founders of FICO, Bill Fair and Earl Isaac, wanted an impartial way to judge borrowers before lending them money. 

Before the FICO score came about in 1989, there were several basic credit bureaus in operation. These companies tracked whether or not consumers paid their bills on time, but they weren’t as accurate or unbiased as today’s data-based systems.

At one point, your credit report could even include information about your political preferences and other intimate details. 

🤔 Did you know that 90% of lenders use FICO credit scores for underwriting decisions rather than the free scores you get from Credit Karma?

Nowadays, the FICO score is a sophisticated piece of financial technology that businesses rely on to select the best possible loan candidates. The FICO score is the most popular option for lenders, especially for mortgages, though it has reputable competitors like VantageScore. 

When you check your credit score for free through a third-party service, you’re often seeing your VantageScore credit score and not your FICO score. 

There are small differences in how each scoring model weighs various factors. That’s why one website may say your score is 740 when an auto lender says it’s 720.

In general, though, credit scores from different models should still be relatively similar.

How FICO Scores Change

There are multiple iterations of FICO scores, with slight discrepancies between each of them. You can get your 28 FICO scores here.

Approximately every five years, FICO updates its scoring models to create an algorithm that more accurately reflects how responsible consumers are. Factors that may have seemed significant at one point may be disregarded, while others may be deemed more important.

When FICO creates a new scoring algorithm, it can take several years before lenders start using it. For example, FICO 9 was released in 2014, but FICO 8 is still the most common version used by credit bureaus. Most mortgage lenders use even older versions when approving borrowers.

Understanding FICO Scores
Did you know lenders pull different FICO scores when you apply for a car loan vs a home loan?  And yet another for credit cards?  And the scores can vary (a LOT!)  Learn more about all types of credit scores in this guide.

FICO is supposed to release an update later in 2020, but it will likely take several years before lenders and credit card companies start using it to evaluate borrowers. 

FICO score updates can have a small update on your credit score, depending on the update and what’s already on your report. For example, unpaid medical bills sent to collections have a lesser impact on credit scores using the FICO 9 model.

If you had an unpaid medical collection, then this update would benefit you.

What Makes Up the FICO Credit Score?

Even though there are slight differences between various FICO models, the main tenets remain the same. The FICO credit score is made up of the following factors:

  • On-time payments: 35%
  • Less than 30% credit card utilization: 30%
  • Average credit age: 15%
  • Recent applications: 10% 
  • Having both installment and revolving credit: 10%

If you want to improve your FICO score, pay your bills on time, watch how much available credit is left on your credit cards and avoid opening new accounts.

Be aware that it can take time for your credit score to improve, especially if you filed for bankruptcy or had an account go to collections.

What is the FICO Credit Score Range?

Most FICO credit scores range from 300 to 850. However, auto lenders and credit card companies use a range between 250 to 900

Here is the general FICO credit score range:

  • Poor: Less than 580
  • Fair: Between 581 and 669
  • Good: Between 670 and 739
  • Very Good: 740 and 799 
  • Excellent: 800 and more

The range you fall into as a borrower can mean the difference between thousands of dollars in interest over the life of the loan. If you’re buying a house, a good credit score can save you tens of thousands. 

Conventional mortgages usually require a score of 620 or higher. If you have a credit score less than 580, you won’t even be able to qualify for an FHA mortgage unless you have a 10% down payment.

Many high-paying rewards or travel credit cards are only available to those with scores of 700 or higher.

Credit scores can also be used for non-lending purposes. In some cases, utility companies may require a deposit for account holders with a low score.

Some careers and specific positions require a credit check during the application process, especially those dealing with some level of financial responsibility.

The military can even use a low credit score as grounds for revoking security clearance.

Where Can I Find My FICO Credit Score?

Finding your FICO credit score is harder than finding a credit score from VantageScore. Most free sites, including Credit Karma and Credit Sesame, only show your VantageScore. 

Discover Bank has a free credit score service that will show your FICO 8 score, even if you’re not a Discover customer. You just have to register for an account and provide some personal information, like your Social Security number and address.

You can also purchase your score directly from myFICO for $19.95 a month. This provides access to a monthly updated FICO credit score, as well as a credit report and basic credit monitoring.

Tracking your FICO score is useful for consumers looking to buy a house or take out another major loan. Once you have a FICO score in the “very good” or “excellent” range, you can confidently begin the lending process.

If you’re interested in viewing your credit score, click here to get all 28 credit scores with this tool and learn how to improve your score.