FICO and Credit score, a topic of discussion we always here about. To most people, it sounds like a bunch of important numbers calculated we need to know when we apply for our next credit card or loan. In fact, there are multiple ways of calculating a credit score. FICO Score and VantageScore are the most common ways of calculating credit score. Let’s discuss what credit score means and how it’s calculated.
What is Credit Score?
A credit score is typically a three digit number that ranges between 300 and 850 that banks use to evaluate your credit worthiness. Your credit score can affect being approved for credit cards, mortgage, personal loans, and the interest rates that are applied to those loans. If you have a high credit score, you have a better chance for approval, lower interest rates, making you an attractive borrower. If you have a low credit score, it can be difficult to be approved and may have higher interest rates, which makes you a risk to financial institutions.
So how is your credit score calculated? There are three major credit bureaus responsible for creating your credit report, Experian, Equifax, and TransUnion. Credit reports typically include details like your payment history, total debt, unused credit, and other types of credit that you’ve created. Since all three credit bureaus gather data differently, it’s important to now that each credit report can be different and will result in three different scores. Credit reports then go through a credit scoring model like FICO to calculate your credit score. Even though the three major credit bureaus use their own credit scoring model to calculate credit scores, the FICO score is the most used by top lenders in country.
The FICO Score model was created by the Fair Isaac Corporation and is currently the most used credit scoring model provided to lenders and consumers. There are many versions of the FICO score and are all used differently. FICO8 is the most used version today used by lenders. In 2019 FICO created an updated version of the FICO score called FICO9, but the FICO8 is still most used today by creditors.
How is FICO Score Calculated?
The FICO scoring model uses five different categories in order to calculate your score. All Five categories are weighted differently according to what FICO believes impacts your credit score more than others.
FICO Score is weighted as follows:
- Payment History: 35%
- Amounts Owed: 30%
- Length of Credit History: 15%
- Credit Mix: 10%
- New Credit: 10%
Since FICO calculates your credit score based off information from multiple credit reports, your credit scores will vary. It’s highly recommended that you check your credit reports regularly to see what’s affecting your credit score and what you can do to improve it.
Now that you know the five categories of the FICO scoring model, you can make responsible decisions that will affect your FICO Score.
The FICO Score will range between 300 and 850.
- Very Poor Credit: 350-579
- Fair Credit: 580-669
- Good Credit: 670-739
- Very Good Credit: 740-799
- Exceptional Credit: 800-850
Get Your FICO Score
Knowing your FICO score is good information to have especially when applying for your next credit card or loan. Many borrowers today make the common mistake of waiting for the next credit card application to know where they stand or not knowing where they stand at all. There are several options that make it easy to retrieve your FICO Score. Some credit card issuers like Bank of America or Citibank offer customers their FICO Scores every month free of charge with their credit card statement. FICO can also provide you with your FICO Score with a small fee which includes copies of your credit reports.
Other Credit Scoring Models
There are several other credit scoring models available, but the two most used today are the FICO Score and the VantageScore scoring model. The VantageScore is the second major credit scoring model created by the credit bureaus as competition and an alternative to FICO. VantageScore and FICO are similar in many ways but the biggest difference between the two is credit history. FICO requires at least six months of credit history to be scored while VantageScore requires as little as one month of credit history.
Below are some similarities that VantageScore shares with FICO.
The VantageScore is weighted as follows:
- Payment History: 40%
- Depth of Credit: 21%
- Utilization: 20%
- Balances: 11%
- New Credit: 5%
- Available Credit: 3%
The VantageScore also ranges between 300 and 850.
- Poor Credit: 300-630
- Fair Credit: 630-690
- Good Credit: 690-720
- Excellent Credit: 720-850
What’s the Difference?
When it comes to FICO Score and Credit Score, what differentiates the two is the scoring model used to calculate your credit score. Credit scores are calculated by evaluating credit reports provided by the three major bureaus Experian, Equifax, and TransUnion. Other credit scoring models are available along with FICO and VantageScore, but the Fico score is used the most by lenders today. FICO scoring model stands out from the rest and has proven to be the most reliable. It’s important to remember that Experian, Equifax, and TransUnion all provide different credit reports which will result in a different FICO score for each.
1. https://www.creditcardinsider.com/blog/fico-score-vs-credit-score/ 2. https://www.creditkarma.com/credit-scores/ 3. https://www.thepennyhoarder.com/credit-scores/fico-vs-credit-score/?aff_sub2=best-bank-promotions