This content is created by AP Buyline in accordance with AP’s editorial guidelines and supervised and edited by AP staff. Our evaluations and opinions are not influenced by our advertising relationships, but we may earn commissions from our partners’ links in this content. Learn more about AP Buyline here.
In a nutshell
A FICO score is a three-digit number that represents your creditworthiness to lenders.
- Your FICO score is based on your credit history and helps lenders determine how likely you are to repay a loan or credit card.
- The higher your FICO score, the more trustworthy you appear to lenders.
- Monitoring your FICO score regularly helps you learn which factors are impacting your credit, allowing you to improve your score.
Why FICO scores are important
Your FICO score is based on your credit history and helps lenders determine how likely you are to repay a loan or credit card balance. Lenders and creditors use your FICO score to determine whether you will be approved for credit or loans and the terms they can offer you.
The higher your FICO score, the more trustworthy you appear to lenders. A "good" or "excellent" FICO score can save you thousands of dollars in interest on a loan, while a low score can result in higher interest rates and limited access to credit opportunities.
In some states and situations, your credit score is also factored into decisions like your auto and homeowners insurance premiums and whether you’ll be approved to buy or rent a home or apartment.
What makes FICO scores different from other credit scores?
FICO scores are one of the most widely used types of credit scores by lenders in the U.S. While credit scores have been around since the mid-1800s, the Fair Isaac Corporation developed the FICO score in 1989 to serve as an industry-standard credit score with a consistent scoring model. Today, it’s used by 90% of top lenders.
The FICO scoring system is commonly compared to VantageScore, another credit scoring model launched in 2006. The three major credit bureaus, Experian, Equifax and TransUnion, developed VantageScore as a competing credit scoring model and it’s used by more than 3,000 lenders. While both VantageScore and FICO score credit scores can range from 300 to 850, FICO score’s model calculates your credit score differently.
The FICO scoring model places more emphasis on your credit utilization rate which demonstrates whether or not you’re using a large amount of your available credit. FICO also doesn’t factor in your credit account mix (the different types of accounts you have) as much as the VantageScore credit scoring model does.
FICO also has several versions currently ranging from FICO 2 to FICO 10 and each version may calculate your credit score differently. Certain lenders are also likely to use specific versions over others. For example, mortgage lenders tend to use FICO score 2, 4 or 5 while a credit card lender may use FICO Bankcard Score 8 or 9.
If you’re applying for a new loan and shopping around for rates and terms, FICO’s newer scoring models will count your hard inquiries within a 45-day period as one inquiry. Previous versions and other credit scoring models allow this courtesy for only a 14-day period.
What is a good FICO score?
FICO scores range from 300 to 850. The higher your score, the better your credit rating. A good FICO score ranges from 670 to 739 while a very good score ranges from 740 to 799.
Here’s an overview of all the FICO score credit ranges.
- Poor: 580 and below.
- Fair: 580 to 669.
- Good: 670 to 739.
- Very Good: 740 to 799.
- Excellent: 800 and above.
The definition of a "good" score can vary depending on the lender and the type of credit you're seeking.
How your FICO score is calculated
Your FICO score is calculated using five main factors: payment history, amounts owed, length of credit history, credit mix and new credit.
- Payment history (35%): Your track record of paying bills on time. Late payments, collections and bankruptcies can all negatively impact your score.
- Amounts owed (30%): The total amount of debt you owe across all credit accounts. This includes credit card balances, loans and mortgages. If you are using too much of your available credit limit, this could negatively impact your score so it’s best to keep your credit balances below 30% of your credit limit. Also, avoid borrowing more than you can afford to repay in a reasonable time frame.
- Length of credit history (15%): How long you've had credit accounts open. A longer credit history can indicate responsible borrowing habits and also provides more data for the credit scoring model to take into consideration.
- Credit mix (10%): The types of credit accounts you have, such as installment loans and revolving credit. A diverse mix can show responsible use of credit.
- New credit (10%): The number of new credit accounts opened in a short amount of time can signal potential financial stress and negatively impact your score. You should also consider keeping certain accounts open for a longer period of time to improve this factor. This could mean not closing a no-fee credit card you have even if you don’t use it regularly.
How to get a free FICO score
Thanks to the federal Fair Credit Reporting Act, you can access your free credit report and FICO score once annually from each of the three major credit bureaus. You can request your credit reports online at annualcreditreport.com or by phone or mail, by:
- Calling 1-877-322-8228.
- Downloading the request form and sending it to: Annual Credit Report Request Service, P.O. Box 105281 Atlanta, GA 30348-5281.
If you have a Discover credit card, you can also get your free FICO score through its Discover Scorecard service. Some other credit card issuers like Citi and American Express also offer a free FICO score. Bank of America provides this service to current online and mobile banking customers, so a credit card isn’t required.
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A good FICO score is important for accessing favorable credit opportunities and saving money over time through lower interest rates. Understanding how your score is calculated and taking steps to improve it can help you achieve your financial goals.
It's also important to regularly monitor your score, as errors or fraudulent activity on your credit report can impact your FICO score. By maintaining responsible borrowing habits, you can work toward having a strong FICO score that reflects your healthy financial habits.
Frequently asked questions (FAQs)
What is a FICO score vs. credit score?
FICO score is a type of credit score created by the Fair Isaac Corporation. It considers factors such as your payment history, amounts owed, length of credit history, credit mix and new credit accounts.
Why is my FICO score higher than my credit score?
Your FICO score and credit score may differ because they use different scoring models and consider different factors. It's important to regularly monitor both scores to get a comprehensive understanding of your credit health.
Which credit score is most accurate?
Since lenders use multiple types of credit scores, the most accurate scoring model will depend on what's reported on the credit report. However, FICO scores are widely used and trusted by many lenders in the credit industry.
This content is created by AP Buyline in accordance with AP’s editorial guidelines and supervised and edited by AP staff. Our evaluations and opinions are not influenced by our advertising relationships, but we may earn commissions from our partners’ links in this content. Learn more about AP Buyline here.
