Budgeting basics

What is a FICO score?

A FICO score is a type of credit score. It represents your ability to use credit wisely. Lenders use the number to assess how likely you are to repay debt on time.

March 16, 2023
 min read
Last updated:
Jan 18
A man at a desk looking at his laptop and smiling.

‍The gist: A FICO score is a specific type of credit score. It is commonly used by lenders (like banks) to determine whether or not to lend you money.

FICO is short for The Fair Isaac Corporation which developed the score. A person’s score will range from 300 to 850. A higher score means that you have been responsible when it comes to borrowing and repaying money. 

The score is important for anyone seeking a credit card, mortgage, or a loan. A higher score means that you present less risk to the lender. Therefore, you’re more likely to get a lower interest rate.

The calculation of your FICO score is made up of five factors. Each has a different level of influence on the final score. The factors include payment history, amounts owed, length of credit history, credit mix, and new credit.

FICO scores are not set in stone, ​​they have the ability to evolve over time. The fact that they can change is good news because that means that you can increase your score by taking specific steps.

What is a FICO score?

Why it pays to have a higher FICO score

A FICO score is the quickest and most convenient way for a lender to determine if you’re likely to repay debt consistently and on time. The number is widely used because it prevents lenders from having to assess and analyze years of credit use and account history. 

Creditors want to know a lot about you before they lend you money. They want to know how much credit you have and how long you’ve had it. They also want to know if you've paid on time and how much of your available credit you’re using. The FICO score answers all of these questions.

Your score can have a big impact on the cost of major purchases. For example, suppose you’re buying a $350,000 home with a $70,000 down payment and you need a mortgage. If your FICO score is in the 620 to 639 range (“fair”) you can expect an interest rate of about 7.65% on a 30-year fixed mortgage. This means that you’ll pay $434,231 in total interest over the course of the mortgage.

However, if your FICO score is above 760 (“very good”) your interest rate is likely to be about 6.06% which means you’ll pay $327,591 in total interest. That’s a savings of $106,640. 

It literally pays to have a higher FICO score. 

67% of Americans have a good FICO Score or better

How is a FICO score different from a credit score?

A credit score is a general term for a single numerical score that summarizes your credit history. A FICO score is one particular brand of credit score that is popular with lenders. 

The difference between a credit score and a FICO score is a bit like the difference between a car and a Ford. One refers to all cars and one refers to a particular make of car.

The other major type of credit score is a Vantage score. Vantage scores look the same as FICO scores but are calculated in a slightly different way.

When is a FICO score used?

FICO is the most commonly used type of credit score in the US. It is used especially heavily in mortgage applications and car loan applications*.

How is a FICO score calculated?

FICO scores are calculated using a weighted list of factors. This means that some factors are more important than others. The weighting are:

  • Payment History: 35%
  • Amounts owed: 30%
  • Length of Credit History: 15%
  • Credit Mix: 10%
  • New Credit: 10%

The most important two factors - payment history and amounts owed - look at how consistently you’ve paid on time and how much money you owe in comparison to the amount of credit available to you. Basically, a higher FICO score means you pay on time and you don’t use too much of your credit.

Length of credit history is third on the list because it tells lenders how much experience you have with credit. A longer history suggests that you are more reliable. FICO will look at the age of the oldest account and newest account to calculate an average.

Credit mix refers to the different kinds of credit you have. Examples include credit cards, mortgages, auto loans, and retail accounts. Having a range of credit types tells FICO that you can manage different kinds of loans. 

Lastly, new credit tells FICO if you have several new accounts. If you do, your score will fall because opening several new accounts in a recent period is a likely sign that you cannot repay your balances. 

Why are there different FICO scores?

It’s possible to have several different FICO scores at one time. Why? Because there are three national credit bureaus in the US - Equifax, Experian and TransUnion - that each collect credit history information on consumers.

This means that a detail in your credit history might be in the data one bureau collects but not the other two. Or there may be differences in the way the data is organized. These differences are often minor and lead to only slight differences in FICO scores. If you have a “good” FICO score (690-719) in one bureau, it is likely you’ll have a “good” score in the other two even if the number is not exactly the same.

There are a few common reasons why FICO scores may vary between bureaus:

The scores are generated at different times 

The numbers could differ If you request two FICO scores at different times because one is more recent than the other. The more recent score could include more information which changes the score. Also, lenders report your credit information to the three bureaus at different times. This can also lead to different scores.

Lenders report to some bureaus but not all

Not all three bureaus will always have the same information on your credit history. For example, it’s possible that one of your lenders reports your information to two of the bureaus but not the third. 

The credit accounts are under different names

One of your credit accounts might be under a short version of your name (Tim, instead of Timothy), or an older account might be under a maiden name. Sometimes these differences mean that some information is not included on a report that should be. 

How can I improve my FICO score?

Whether your score is low, medium or even non-existent, to improve your FICO score you need to focus on the three areas that carry the most weight when calculating the score. These are payment history, amounts owed, and length of credit history.

This means:

  • Making consistent, on-time payments 
  • Paying the amount due in full and not carrying a balance from month to month
  • Using an amount of credit that is well below your limit
  • Taking the time to build years of responsible credit use

Minimize new applications for credit and avoid opening multiple lines of credit at once. Also, try to use a range of credit products to demonstrate your ability to manage various kinds of borrowing.

Lastly, you should also get a copy of your credit report and check that it is correct. If there are errors, contact the credit bureau to get them fixed. You are entitled, by law, to one free credit report annually from the three major bureaus.





*Prices fluctuate based on season and day of the week.

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Ben Taylor

Ben Taylor, MBA is a financial writer with work appearing in Business Insider, Nasdaq, Yahoo Finance, The Motley Fool, and Investopedia. He covers personal finance, and investing to help readers make informed decisions. He is the founder of Financial Content Management, which offers financial writing for sites focused on both retail investors or institutional investors. He lives outside Philadelphia.