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What a FICO Score Is and Why It Matters

FICO scores are the most commonly used type of credit score.

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While most people refer to your “credit score,” it actually should be “credit scores.” That’s because there are several types of credit scoring models used by lenders and companies in the US, including those created by VantageScore and the Fair Isaac Corporation, or FICO.

However, FICO scores are the most common type of credit score and are used by 90% of top lenders. But what exactly is a FICO score, and why should you care about yours? Here’s everything you need to know.

What is a FICO score?

A FICO score is a three-digit number that’s based on five factors: payment history, amounts owed, length of credit history, new credit and credit mix. 

Credit scores can be used in a variety of circumstances, but they are mostly used by lenders and other creditors to determine how likely you are to pay back money you borrow.

Why is your FICO score important?

FICO scores are used by lenders and other creditors when you apply for a loan or any other type of financing. The better your score, the more likely you are to be approved for the credit product. If you have a high credit score, it’ll also typically translate to better terms, like lower interest rates and fewer fees. 

Outside of determining your approval chances and loan terms for credit products, your FICO score can also play a role in whether you can get approved for an apartment. It can even impact your auto and homeowners insurance.

In some cases, your credit score can even impact whether you get offered a job. While employers can’t actually see your credit score, they can see a modified version of your credit reports for hiring purposes, with your permission.

FICO score vs. VantageScore

There’s no one-size-fits-all model for credit scores. Whether lenders check your FICO score or VantageScore, a good credit score can help you secure the best rates on top credit cards, loans and insurance.

Note that FICO credit scores and VantageScores both use the same range of 300 to 850, although they use slightly different factors to determine consumer scores. 

Fortunately, the exact same steps are required to improve or maintain your FICO score or your VantageScore -- pay all your bills on time, keep debt levels in a reasonable range, and refrain from opening or closing too many accounts.

What is the FICO score range?

FICO scores range from 300 to 850 and help lenders evaluate the financial risk of a prospective borrower. These scores measure, among other things, how long you’ve had credit, if you’ve paid bills on time and how much credit is being used. 

The FICO score range is broken up into five categories:

  • Exceptional (800 to 850): An exceptional FICO score is your ticket to qualify you for the best rates and loan terms. 
  • Very Good (740 to 799): Borrowers with a very good score are assessed as low risk and above average, receiving more favorable terms. 
  • Good (670 to 739): The average FICO score in the US of 715 falls comfortably in this range. Most lenders are willing to lend to borrowers who have a “good” FICO score.
  • Fair (580 to 669): Although considered below average, people with a fair FICO score may be approved for a loan by lenders with less favorable terms. 
  • Poor (300 to 579): A score under 580 is considerably below average and a red flag for potential lenders. 

How is a FICO score determined?

A FICO score is calculated by pulling data from the three credit bureaus: Equifax, Experian and TransUnion. From there, scores are determined based on the following factors:

  • Payment history (35%): This is the most influential factor in your score. It takes into account how reliably you pay your bills on time.
  • Amounts owed (30%): This factor is based on the ratio of your total credit to your total debt -- also known as credit utilization. High credit utilization can negatively impact your score and be a red flag to lenders and issuers if you’re using most of the credit you have available. 
  • Length of credit history (15%): How long you have credit affects your score. This is calculated by considering the length of the oldest (and newest) accounts plus the average length of all of your accounts. 
  • Credit mix (10%): Having a variety of credit accounts helps lenders determine if you can handle different types of accounts -- be it loans or credit cards. While this accounts for only 10% of a FICO score, having both installment loans and revolving credit can help your score. Just remember to use your credit responsibly. 
  • New credit (10%): New credit reflects the number of recently opened credit accounts and hard credit inquiries from creditors when applying for credit. 

Other factors that can impact your FICO score

While the breakdown of your FICO score may seem complex, the following real-life factors can impact your score. 

Closing a credit card or account

“Closing the account could negatively impact your FICO score by reducing your utilization,” said Tommy Lee, senior director of Scores and Analytics for FICO. Revolving credit utilization (which is the amount of credit you’re using compared with what you have available) is an important factor in the “amounts owed” category, he added. 

A hard credit inquiry

“A hard inquiry could lower your FICO score by several points depending on other factors in your credit report,” Lee said. However, keep in mind that inquiries and new account openings combine to make up the “new credit” category that consists of only 10% of your FICO Score calculation. That means this category isn’t as impactful as other factors, he added. 

Too many new accounts

Opening several new accounts in a short period of time will lower the average age of your accounts. This accounts for the length of credit history that makes up 15% of your FICO score. “Rapidly opening accounts when you’re new to building credit can be viewed as risky in the eyes of lenders,” Lee said.

How to increase your FICO score

Improving your FICO score takes time, but it’s possible with the right moves. Consider taking the following steps to boost your credit this year:

  • Use a credit monitoring service to track your credit score. 
  • Get your credit report from all three bureaus at least once a year to review it and dispute any mistakes that may lower your score. All credit bureaus have a dispute resolution process to help you. Currently, the three credit bureaus continue to offer free weekly online credit reports through AnnualCreditReport.com.
  • Decrease credit utilization by keeping your balances low on revolving lines of credit such as credit cards. Experts recommend you keep your credit utilization below 30%, though the lower you can get it, the better it’ll be for your score.
  • Address any missed payments. You can also set up autopay to help you stay on top of your bills. 
  • Pay down debt by making more than the minimum monthly payment.
  • Refrain from closing your oldest credit card accounts, but keep them in good standing. 
  • If you are an authorized user on someone else’s account, make sure that data is being reported to the credit bureaus. 
  • Find out if your preferred lender participates in FICO® Score Open Access to check your score and the factors impacting it.

Aside from these tips, the most important thing to do is to make every payment on time. 

“Paying on time is the most important category of the FICO Score calculation,” Lee said. “The first thing any lender wants to know is whether you’ve paid past credit accounts on time. This helps a lender figure out the amount of risk it will take when extending credit.”

Lee also suggested opening a credit card could help improve your credit mix, which in turn impacts your credit score. Practicing good credit habits with your first credit card can also show lenders that you’re responsible and can manage different kinds of credit. It can also make you seem less risky to lenders. “Additionally,” Lee said, “If you open a new credit card account but keep your credit utilization low, this can also increase your credit score.” 

Are there other types of FICO credit scores?

Even within this one type of score, there are many different models. 

In fact, there are 16 versions of FICO scores used for different purposes. For example, the FICO® Score 8 and the FICO® Score 9 are the most widely used FICO scores in lending decisions, but there’s also the FICO® Auto Score 10 for auto lending and several types of “classic” FICO scores used in the mortgage lending space.

There are also VantageScore credit scores that we already mentioned, with the two most commonly used types being VantageScore 3.0 and VantageScore 4.0.

The bottom line

FICO scores are an essential tool for understanding your creditworthiness and can be a key factor in lenders’ decisions on loan offers, interest rates and other financial opportunities.

 

A good FICO Score can help you save money and secure the best rates. To maintain a good credit score, you must prioritize on-time payments, keeping your credit utilization low and pay down existing debts.

Correction: An earlier version of this article was assisted by an AI engine and it misstated details about the VantageScore credit score. That section was removed. This version has been substantially updated by a staff writer.

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Dashia is a staff editor for CNET Money who covers all angles of personal finance, including credit cards and banking. From reviews to news coverage, she aims to help readers make more informed decisions about their money. Dashia was previously a staff writer at NextAdvisor, where she covered credit cards, taxes, banking B2B payments. She has also written about safety, home automation, technology and fintech.
Holly Johnson is a credit card expert and writer who covers rewards and loyalty programs, budgeting, and all things personal finance. In addition to writing for publications like Bankrate, CreditCards.com, Forbes Advisor and Investopedia, Johnson owns Club Thrifty and is the co-author of "Zero Down Your Debt: Reclaim Your Income and Build a Life You'll Love."
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