A FICO Score is a person’s credit rating that lenders use to assess how well someone is doing with debt and whether it is a good idea to lend them money.
What is a FICO score?
FICO Scoring is an assessment of your creditworthiness based on your debt payment history, the amount you owe, and other factors. Lenders and businesses use it to help them decide whether to lend you money, give you a credit card, or let you buy goods and services on credit. It is a numerical score between 300 and 850 developed by Fair Isaac Corporation. A high score means that you are considered a reliable borrower, able to repay on time, and it is easier for you to borrow money at the best interest rates. A low score means that you are considered a risky person who may not repay your debt, and you may have to pay higher rates or may be denied credit altogether.
What does FICO score mean?
A FICO scoring is an approximate measure of how well you are doing with debt. A high score means that you are generally doing well with your debts and paying your bills on time. A low score means you may have had debt problems in the past, such as missed payments or exceeding your credit card limits. Lenders look at FICO scoring in these ranges:
Less than 580: Bad
580 – 669: Fair
670 – 739: Good
740-799: Very good
800 or more: Outstanding.
If you have an exceptional FICO scoring, it means you have a track record of paying on time and keeping your debt at a reasonable level compared to your credit limits. A low FICO scoring can mean the opposite: you’ve had trouble paying your bills on time and have too much debt.
What affects a FICO score?
FICO scoring is affected by five main factors.
- Payment history
- Amount owed
- Length of credit history
- Credit balance
- New credit
Payment history is the most important factor in calculating your FICO scoring. It tracks your history of paying bills on time. Every time you pay a bill on time, it helps your score. If you miss a payment or are late in making it, it can affect your score.
The amount you owe is the amount of money you owe and is the second biggest factor affecting your credit score. You can split this part of your FICO scoring into two parts: how much debt you have and how much of your credit limits you have used.
Length of credit history – generally, the longer you’ve had access to credit, the more experience you have with debt. If you regularly open new accounts, this can lower the average age of your accounts and therefore lower your credit score. It also means that keeping old cards open instead of canceling them can raise your FICO scoring, even if you don’t use them.
Credit Balance – part of dealing with credit is gaining experience with different types of debt. Your credit portfolio takes into account the different types of credit accounts you may have had, such as mortgages, auto loans, student loans, and credit cards. Generally, the more different types of debt you have had, the better it reflects on your account.
New Credit – when you apply for credit, lenders usually ask one of the credit bureaus for a copy of your credit report. The bureaus take note of these requests for new credit accounts and add a note on your credit report. Each inquiry can often lower your score by several points for a period of time.
Is FICO score = credit score?
Your FICO score is a credit score, but not all credit scores are FICO score.
FICO scoring uses information from your credit report to calculate a score that assesses your reliability as a borrower. FICO scoring is the most widely used credit score, but other companies have developed other credit scores based on their own formulas. Two examples are the Equifax credit score and the VantageScore. Because each formula is different, your FICO scoring may be different from your Vantage Score or Equifax credit score, even though all three are credit scores.
What is a good FICO score?
FICO states that scores between 670 and 739 are considered good scores. It considers scores of 740 to 799 to be very good, and scores of 800 or more to be exceptional. Scores in the “good” range are close to or above the average for consumers in the U.S., which puts you in an excellent position to get credit from most lenders. Once you reach a very good or exceptional score, credit terms become more attractive.
How do I get a FICO score?
Many companies offer free credit monitoring and scoring services that allow you to track your credit and the factors that affect it. Most of these services give you a credit score, but use their own proprietary formulas or rely on methods provided by other companies, such as VantageScore. Your credit report contains the information used to calculate your FICO scoring, and federal law allows you to get a free copy of your report from each of the three major credit bureaus once a year. You can request copies at AnnualCreditReport.com .
Some credit card companies, such as American Express, offer their customers free FICO score as a benefit.