A FICO® Score* is one of the credit scores most commonly used by lenders and businesses to assess your credit history and decide if you are financially reliable.
FICO® stands for Fair Isaac Corporation, which is the name of the company that developed the score which is based on your personal financial data on record at the three major credit bureaus.
Your FICO® Score is a three-digit number that ranges from 300 to 850. The higher your FICO® Score, the better. The average FICO® credit score is around 700.
You may be able to qualify for loans and credit cards with a bad credit score, but you may be required to pay a higher annual percentage rate (APR), or additional fees, such as an application fee or processing fee
There are a number of versions of FICO® scores. The latest versions are FICO® 8, and FICO® 9. The different FICO® scoring models are based on the information contained in consumers' credit reports.
Since each of us has three different credit reports—one from each of the three credit reporting bureaus (Experian, Equifax, and Transunion), and since the information in these credit reports may vary, your FICO® 8 score from Experian may be slightly different than a FICO® score based on Transunion data, for example.
There are also specialized versions of FICO® Scores tailored for industry or purpose-specific uses, such as auto loans, bank credit cards, and even insurance
There are other credit scores used by lenders and consumers, namely VantageScore®.
What Is a Good FICO® Score?
Generally, if your FICO® credit score is at least 740 you are considered to be an excellent credit risk, and may be offered the best terms on a loan or credit card. More than 40% of consumers have FICO® Scores above 740.
A lower FICO® Score does not mean you will not be able to take out a loan or get a credit card. Your FICO® credit scores are just one of many factors that lenders take into consideration when reviewing your application for credit or a loan.
Depending on what FICO® Score range you are in, you may be asked to make a bigger down payment for a home or car loan, or be required to pay a higher interest rate than someone with a higher FICO® Score.
What Is a Bad FICO® Score?
A FICO® Score below 669 lands you in the fair or very poor risk category, which lenders refer to as "subprime." You can still qualify for loans and credit cards with a lower FICO® credit score, but you may be required to pay higher interest rates, make a bigger down payment, or pay additional fees.
Your FICO® Scores are based on the latest updated information contained in your credit reports, which are typically updated monthly.
You can take steps to improve your credit score, such as paying your bills on time. You may find it makes sense to spend some time boosting your FICO® credit scores before you apply for a loan.
Many lenders use credit score ranges to make lending decisions and determine the terms associated with loan or credit card. For example, 580-669 is considered "fair" credit, and 670-739 is considered "good" credit. Moving into a higher score range could qualify you for a better loan deal.
Why Do I Have More Than One FICO® Score?
There are three major credit bureaus—Equifax, Experian and TransUnion—that collect your credit and loan information, and other financial data in a file that is called a credit report. If you have a credit report at one of the credit bureaus, you will likely have a FICO® credit score based on that information. Most consumers have three credit reports.
How Is My FICO® Score Calculated?
Your FICO® Scores are based on five factors:
1. Payment History
Your payment history accounts for about 35% of your FICO® Score. It is essentially your track record of making payments on credit card bills and your loans. Making on-time payments is one of the best ways to improve your FICO® credit scores.
2. Credit Utilization
Credit utilization accounts for about 30% of your FICO® credit score. It is based on how much of your available credit lines on credit cards (and any other revolving credit) you are using.
Your total outstanding balances on your credit cards is divided by your total credit limits, to calculate your credit utilization rate.
If you have $2,000 in outstanding balances and $10,000 in combined credit limits, you have a 20% utilization rate, or ratio. There is no magic ratio that guarantees you a better credit score, but lower is better. Many experts have suggested keeping your credit utilization ratio below 30% to help you boost your credit score.
3. Credit History
Your credit history accounts for about 15% of your FICO® credit score. It refers to the amount of time you have had credit accounts open, and how recently you have used an account. A longer history is a plus.
4. Credit Mix
Your credit mix accounts for about 10% of your FICO® credit score. Credit mix means having different types of credit accounts, such as credit cards, a car loan, and a mortgage, and this plays a small role in determining your FICO® Scores. Having a mix of credit types can be a plus, assuming you are making on-time payments on all your debts.
5. New Credit
New credit makes up about 10% of your FICO® credit score. Lenders typically consider it a red flag if you open up new credit card accounts or take out new loans in a short period of time. It can signal you may be taking on too much debt.
What Is FICO® 8?
FICO® often updates the formula it uses to calculate FICO® Scores. Currently, most lenders use the FICO® 8 formula.
There is a newer version, FICO® 9, that is not yet widely adopted. The FICO® 9 formula reduces the impact of medical debt, does not factor in payments to collection agencies that have been paid in full, and will add in rental payments to consumers' credit reports in instances where landlords choose to report this information.
Where Can I Get My FICO® Score?
Many credit card issuers and banks offer customers free access to one of their FICO® credit scores each month. It may be included on your billing statement, or you may be required to log in to your account to get your most recent FICO® Score.
In addition, you can get a free FICO® Score based on your Experian credit report by registering for an account at Experian.com, or your can purchase FICO® score directly from FICO® itself.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on April 12, 2018, and has been updated.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.