A Comprehensive Guide: 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 exactly? How do they affect your ability to get 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 how likely a person is to repay debt. The higher a person’s credit score, the more likely it is that they will repay their debts on time and in full. A good credit score opens the door to low-interest loans and high credit limits, so it’s important to monitor your score. There are three major credit reporting agencies-Equifax, Experian, and TransUnion-that calculate scores based on information in a consumer’s credit report. Only one company, Fair Isaac Corporation (FICO), calculates the credit scores used by lenders. FICO has several versions of its scoring model, which use different formulas to determine a score. But all FICO models rely on five factors: payment history, amounts owed, length of credit history, new credit accounts opened, and types of credit used. Click for more information on this product.
Your credit report will include your FICO score from each of the three credit bureaus each month. Fair Isaac Corporation’s FICO scores range between 300 and 850. Most lenders use FICO scores to determine whether or not to make a loan; if your score is too low, you may not be 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. Typically, your credit score is comprised of multiple scores from the three major credit reporting agencies: Equifax, Experian, and TransUnion. Each agency calculates its own version of your credit score based on information in its records about how you pay your bills, the types of accounts you maintain, and the length of time those accounts have been open. Because each agency has slightly different information, it’s possible to have one high score with one agency and another high score with 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. If you see something out of place-or something that doesn’t belong to you-report it immediately so it can be removed. You should also keep track of your scores over time so you can see if any sudden changes indicate trouble down the road.