A Comprehensive Guide: FICO vs Credit Score
Getting approved for a car loan or credit card can be daunting, especially when you hear your lender mention your FICO score or credit score. What are these scores? How do they affect your chances of getting approved? We compare the two most popular credit scores in the United States and explain how and why they are used in this guide.
A credit score is a numerical rating that indicates how likely a person is to repay debt. The higher a person’s score is, the more likely they are to repay their debts in full and on time. A good credit score opens the door to low-interest loans and high credit limits, so it is beneficial to monitor your score. Equifax, Experian, and TransUnion are the three major credit reporting agencies that calculate scores based on information in a consumer’s credit report. However, only one company-Fair Isaac Corporation (FICO)-calculates scores used by lenders. FICO has multiple versions of its scoring model, each of which uses a unique formula to calculate a score. However, all FICO models are based on five factors: payment history, amounts owed, credit history length, new credit accounts opened, and credit types used. Click for more information on this product.
Your credit report will include your FICO score from each of the three credit bureaus each month. Fair Isaac Corporation’s FICO scores range between 300 and 850. Most lenders use FICO scores to determine whether or not to make a loan; if your score is too low, you may not be approved at all. Credit scores are used more broadly than FICO scores-credit card companies, landlords, employers and others can also check them-and they’re calculated differently. Your credit score is typically made up of scores from three major credit reporting agencies: Equifax, Experian, and TransUnion. Each agency computes its own version of your score based on information in their records about how you pay bills, what types of accounts you have open, and how long those accounts have been open. Because each agency’s information is slightly different, it is possible to have a high score with one agency and a low score with another. Click here for more helpful tips.
The most important thing to remember about credit scores is that there is no such thing as a single good or bad number. Lenders set their own standards for approving loans-some will approve borrowers with lower scores, while others won’t touch anyone below a certain threshold. Rather than obsessing over a single number, examine your credit score report and ensure that everything appears to be in order. If you see something out of place-or something that doesn’t belong to you-report it immediately so it can be removed. You should also keep track of your scores over time so you can see if any sudden changes indicate trouble down the road.