You probably know that your credit score plays a vital part in your financial life. But did you know that you have multiple credit scores?
Your credit score can be generated using a number of different scoring models. FICO is one of the most popular models used by lenders, along with VantageScore. While people often use the terms “FICO score” and “credit score” interchangeably, they are technically different. The FICO scoring system is just one formula used to create one of your many credit scores.
Here’s what you need to know about the difference between your FICO score and your credit score, and why it matters.
What is a credit score?
A lender uses your credit score to determine if you’re a responsible borrower. Typically, the higher your credit score, the more likely you’ll be approved for a credit product. It’ll also help ensure you get the most favorable terms, which generally means better interest rates -- which leads to lower payments -- or larger loan amounts.
What is a FICO score?
FICO is an acronym for Fair Isaac Corporation, a company that was one of the first to develop a credit scoring model based on information from credit reporting agencies. The FICO scoring system uses a specific set of criteria to generate your credit score, drawing on information found in your credit reports. It’s one of the most widely used scoring models available, next to VantageScore.
“FICO is a great case study of first-to-market domination,” said credit expert John Ulzheimer, formerly of FICO and Equifax. According to Ulzheimer, FICO was the only option before VantageScore hit the scene in 2006. FICO was also the first tri-bureau credit score, meaning it was adopted by Equifax, TransUnion and Experian.
“And, [FICO’s] models are extremely well-built and effective so certainly their performance is another reason their models are so popular,” he added.
How are FICO scores calculated?
FICO scores are broken down into five different criteria, each one contributing a different percentage to your overall score:
- Payment history (35%): Paying your credit bill on time is weighed the most heavily when calculating your scores. That means it’s very important to never miss a payment.
Amounts owed (30%): Amounts owed accounts for the actual amount of debt you owe across your various accounts as well as your credit utilization ratio. Also called the debt-to-credit ratio, your credit utilization ratio represents how much of your total revolving credit you’re using at one time. Experts recommend using less than 30% of your total revolving credit to keep your score high.
Length of credit history (15%): How long you’ve held your credit accounts also matters. FICO looks at your newest account, oldest account and the average age of your total credit accounts. - New credit (10%): The number of new credit accounts on your credit reports will have an effect on your FICO score. Too many new accounts or new inquiries in a short period of time may also be a red flag to lenders.
- Credit mix (10%): How diversified your credit portfolio is will also impact your score. It’s better to have a mix of products, like mortgages, auto loans, student loans and credit cards.
FICO score ranges
| Score | Category |
|---|---|
| 300-579 | Poor |
| 580-669 | Fair |
| 670-739 | Good |
| 740-799 | Very good |
| 800-850 | Excellent |
What does a credit score mean to a lender?
Your credit score is how lenders gauge your creditworthiness. Your credit score impacts the likelihood of approval for credit products, as well as the kinds of terms you’re assigned.
“If you want to get approved with competitive terms you have to have good or better [credit] scores. Paying your bills in time and keeping low amounts of credit card debt is the best way to set yourself up to earn and maintain great scores,” Ulzheimer said. That means building a history of on-time payments while maintaining a low credit utilization.
Depending on the exact scoring system your lender uses -- FICO or VantageScore -- and which credit bureau it pulls from, the credit score your lender sees may vary from situation to situation.
The bottom line
Many people use “FICO score” and “credit score” synonymously, but that’s not strictly true. A FICO score is just one scoring model used to generate your credit score. There are others, but FICO is the most widely used by lenders. It uses the information from your credit reports to generate your credit score according to five different criteria. The best way to improve your score is to make all of your credit payments on time.
Editors’ note: An earlier version of this article was assisted by an AI engine. This version has been substantially updated by a staff writer.
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