FICO vs Credit Score
Acceptance for a car loan or credit card can be intimidating, especially if your lender mentions your FICO score or credit score. What are these scores? How do they affect your chances of getting approved? We compare the two most popular credit scores in the United States and explain how and why they are used in this guide.
A credit score is a numerical rating that indicates a person's likelihood of repaying debt, click here to learn more. The higher a person's credit score, the more likely it is that they will repay their debts in full and on time. A good credit score opens the door to low-interest loans and high credit limits, so it's important to monitor your score. Equifax, Experian, and TransUnion are the three major credit reporting agencies that calculate scores based on the information in a consumer's credit report.
However, only one company-Fair Isaac Corporation (FICO)-calculates scores used by lenders. FICO's scoring model comes in several flavors, each with its own set of formulas for calculating a score. However, all FICO models are based on five factors: payment history, amounts owed, credit history length, new credit accounts opened, and credit types used. Click for more information on this product.
You can receive your FICO score from each of three credit bureaus each month for free through your credit report. Fair Isaac Corporation's FICO scores range from 300 to 850. Most lenders use FICO scores as an indicator for whether to give a loan; if your score is too low, you might not get approved at all. Credit scores are utilized more broadly than FICO scores-landlords, employers, and credit card companies can all check them-and are calculated differently.
Your credit score is typically made up of scores from three major credit reporting agencies: Equifax, Experian, and TransUnion, view here for more info. Each agency calculates its own version of your score based on information in their records about how you pay bills, what kinds of accounts you have open and how long you've had those accounts open. Due to the fact that each agency has slightly different information, it is possible to receive a high score from one agency and another. View here for more info.
The most important thing to remember about credit scores is that there is no such thing as a single good or bad number. Lenders set their own standards for approving loans-some will approve borrowers with lower scores, while others won't touch anyone below a certain threshold. So, rather than obsessing over a single number, take your credit score report and make sure everything looks correct. Report immediately any inappropriate content or content that does not belong to you so that it can be removed. You should also keep track of where your scores stand over time, so you know if any sudden changes could mean trouble down the road.