What Is A FICO® Score And What Should Mine Be?

Your credit score can open the door to helping you achieve many of your financial goals, like buying a house, renting an apartment at your desired location, or even getting approved for a credit card that allows you to earn free travel rewards. When it comes to accessing these different financial products, lenders look at your credit score as one of many factors when determining eligibility.

Learning about FICO^® Scores will help you to understand how lenders view your creditworthiness and in what ways you can improve it to increase your odds of a loan or credit approval.

What Is A FICO^® Score?

Your credit score is a three-digit number that represents your credit history and your risk as a borrower. In other words, the score helps the lender assess the likelihood you’ll pay back a loan on time. There are three different credit reporting bureaus that use your credit history to calculate your credit score.

There are different credit scoring models — FICO^® is one of them. The Fair Issac Corporation (FICO) is one of the leaders in developing credit scoring models based on the three credit bureaus. Most lenders will use the FICO^® scoring model when assessing your application for a loan or credit card. Or, banks and credit unions may use it to approve bank account applications.

Your FICO^® Score can range from 300 to 850. Scoring models use the following factors to calculate your score:

• Payment history: This looks at when you pay your accounts where you owe a balance – whether you pay on time or if you pay late. It may also look at if and when any accounts have gone to collections.
• Amounts owed: FICO^® will check the balance on your revolving accounts — like credit cards and lines of credit — and compare it to your credit limit. The percentage of your credit limit used is your credit utilization ratio. 
• Length of credit history: How long you’ve had accounts open can offer more of an insight into how you’ve handled credit. It can also show that you’re capable of handling credit well, depending on other factors FICO^® uses.
• New credit: The number of new applications you’ve submitted that resulted in a hard credit inquiry could affect your score. In many cases, the more you’ve recently opened accounts, the more your score could be affected. It could also reveal how dependent you are on credit. 
• Credit mix: Though not a major factor that affects your credit score, having varying types of credit or loans can show that you can handle different account types that can positively affect your score.

Your individual FICO^® Score could be can be heavily dependent on your age. For instance, the older you are, the more likely you may be to have had different types of accounts open. You’re also more likely to have a longer credit history.

Keep in mind that there is no single credit score. Even FICO^® has different versions, based on the proprietary methods used to calculate various credit scores. There are also different credit scores by different models, such as VantageScore^®.

How Important Are FICO^® Scores?

Knowing your FICO® credit score can be important for a number of reasons. For one, you’ll most likely need at least a good (or higher) credit score in order to qualify for many loans and credit cards. Lenders want to see that you’re able to handle credit responsibly and pay back your loans on time.

Understanding the many factors that go into calculating your credit score will help you boost or maintain your score. Considering over 90% of lenders use your FICO^® Score when assessing applications, you’ll want to make sure to do all you can to look creditworthy. Even if you’re able to qualify for loan or credit products with your current credit profile, aiming for a higher score can help you achieve more of your financial goals.

For example, higher credit scores, along with other factors like income and the amount of debt you have, could mean you can qualify for a lower interest rate. In the case of mortgages, even a small difference of 1% can help save you thousands of dollars or more throughout the lifetime of your loan. The money you free up from what you could have paid in interest can be used toward other goals, like building up your emergency fund up faster, or using the funds to set aside money for retirement.

Even if you’re not aiming for more long-term financial goals, having a good FICO^® Score can help with other aspects. Say you want to travel more with your family and want to save money on flights. Many credit card issuers offer rewards cards that allow you to earn points or miles toward free travel. Or if you travel often, there are luxury credit cards that offer other perks like free airport lounge access.

Since your credit score can fluctuate, it’s important to continue to monitor it and make any adjustments as necessary as you work to build or maintain your score.

What Is A Good FICO^® Score?

The higher your score, the less of a risk you pose to lenders. A higher score usually also indicates a positive credit history. For example, it could mean you’re more likely to pay back your loans on time and that you are mindful of how much of your credit limit you use.

In many cases, lenders consider a 670 FICO^® credit score or higher a good score. The highest credit score possible you can get is 850.

The following table shows the breakdown of FICO^® credit scores.

FICO^® Scores Ranges: What Is A Good FICO^® Score?

A good FICO^® Score isn’t as hard to come by as you might think: Obtaining one just requires you to exercise sound financial habits. Below, you’ll find a chart that takes a closer look at what lenders might consider to be a good or bad FICO^® Score – and each score’s range and rating.

FICO^® Score Vs. Credit Score: Are They The Same Thing?

Your credit score can come from different scoring agencies and models, like FICO^® and VantageScore^®. Each scoring agency will have its own proprietary formulas as to how it calculates your credit score. Although each scoring agency will have different versions of a credit score or weigh different factors differently, they’re all essentially measuring the same thing: your creditworthiness.

Different lenders use different credit scores, though FICO^® is the most common one used.

FAQs About FICO^® Scores

Learning about FICO^® credit scores can feel complicated. Here are some frequently asked questions to help you learn more.

How do I get a better FICO^® Score?

You can try to boost your credit score by using any of these suggestions:

• Checking your credit reports from all three credit bureaus and reporting any errors you find
• Work on paying your loans and credit cards bills on time and at least the minimum required amount
• Hold off applying for any new credit until you really need to
• Monitor your credit cards and lines of credit to make sure you’re not using too much of your credit limit

Why is my FICO^® Score different from my VantageScore^®?

Your FICO^® and VantageScore^® credit scores are different from each other because both companies use different scoring models. In other words, each of these scoring agencies uses different formulas to calculate your credit score based on information from your credit reports.

Do lenders look at FICO^® Scores?

Yes, many lenders look at FICO^® credit scores when determining eligibility for credit. Different types of lenders may use different versions of your FICO^® Score when processing your application. Lenders may let you know which scoring model is used. As part of the Fair Credit Reporting Act, lenders are required to let you know they will be accessing your credit score when processing your application. As well, the lender needs to inform you why your application was rejected if it was based on factors relating to your credit score.

Do car dealerships use FICO^® Scores?

Car dealerships use either FICO^® or VantageScore^® when assessing your eligibility for a car loan. You can ask the dealership what score it uses.

Steps You Can Take To Improve Your FICO^® Score

A lower credit score can limit your access to new credit, and the terms under which you are able to secure or refinance mortgages and loans. Thankfully, there are several things you can do to boost it if you’re interest in improving your credit score.

Pay Off Debt Or Increase Income

Recalling the importance of maintaining a good DTI ratio, you can enhance yours (and likely boost your credit score) by lowering your debt or increasing the amount of income that you bring in. If you’re looking for methods of paying off debt, for example, you might reduce spending, cancel unused subscriptions, renegotiate with lenders, or refinance lines of credit. Alternately, if you’re hoping to bring more cash in the door, you could switch to a higher paying field or position, ask for a raise, or start a side hustle to help increase your earnings.

Build Up Or Improve Credit

Alternately, you can also improve your credit score by getting in the regular habit of making payments on time and in full. You might additionally give your credit history a boost by signing up for credit-building accounts or asking landlords or utility providers to report your payments to different credit bureaus. Likewise, a common way to help maintain a good credit score, even in the face of a financial setback, is to immediately get in touch with your creditors and work out a repayment plan if budgeting concerns arise.

The Bottom Line

Your FICO^® credit score is a tool you can use to improve many aspects of your financial life. Whether you want to buy a home or a car, or earn points for free travel, knowing what your score is can help you understand what you may qualify for and how to best improve your creditworthiness. That’s why regularly checking your score is key.

To track your FICO^® Score, download the Rocket Money^SM app today.