What Is a FICO Score?

Your FICO Score is what lenders, landlords and other service contractors refer to when determining whether you’re a responsible borrower and measure how likely it may be that you’ll default on a payment contract.

The sooner you become familiar with how to build up a solid FICO Score and understand how it impacts your financial life, the better off you’ll be when it comes time to apply for a loan, credit card or even an apartment lease or cell phone contract.

Let’s go through what exactly a FICO Score is, why it matters, how it’s calculated, how to start building your credit score and where to get your score for free.

What is a FICO Score?

There are many different types of credit scoring formulas, but the one that lenders use most often is the FICO Score. FICO stands for Fair Isaac Corporation, which introduced its credit risk scoring formula in 1989.

The FICO Score ranges from a low of 300 to a high of 850. It breaks down your credit history, management and behavior reported by lenders to the big three credit bureaus (Equifax, Experian and TransUnion) into an algorithm that creates your score.

Here’s how the score ranges are broken down:

• 800-850 – Excellent. Having a score in this range signals to lenders that you’re a low-risk borrower, so you’re likely to get your best rates on new credit products.
• 740-799 – Very good. A credit score in this range is above average and illustrates to future lenders that you’re very dependable.
• 670-739 – Good. This score is near average or slightly above average; however, the closer you are to 739, the better you are in the eyes of lenders.
• 580-669 – Fair. Having a fair credit score suggests either you’re new to credit or have missed a payment or two.
• 300-579 – Poor. A credit score below 579 is considered subpar, and a borrower with that score would be considered high risk by lenders. If you are even approved for a credit product with a score in this range, it will likely have unattractive terms, such as high interest rates.

Here’s how credit scores, including FICO Scores, are generated and used:

1. Lenders report your borrowing and repayment behavior to the credit reporting agencies. When you get a new credit card or loan, the bank, lender and other financial service provider reports that account, along with your repayment behavior, to the credit bureaus on a regular basis, often monthly.
2. That credit report information is then fed into an algorithm, which makes up your credit score. The data on your credit reports are run through a credit score formula that analyzes and scores your credit history. The credit scoring models estimate your creditworthiness and how likely you are to repay (or not repay) a debt.
3. Potential lenders can then access your credit reports and scores to determine risk. They will then use this information to decide whether to approve you for a product. Many lenders will also use your credit score to set costs, reserving their best rates or lowest fees for consumers with higher scores.

Why is my FICO Score important?

The two credit scores that are most often used in consumer lending to gauge your creditworthiness and risk are the FICO Score and its competitor, the VantageScore. The VantageScore also has a 300 to 850 range, and is calculated in much the same way as the FICO Score, but is derived by compiling credit report data from all three credit bureaus.

FICO Scores, on the other hand, are generated for each of the credit bureaus. So, if your lender only reports to one particular credit bureau, it will influence your FICO Score from that bureau; as such, that bureau’s score could be different than your scores from the other two credit bureaus. Generally, your FICO Scores shouldn’t differ that much between the three, but know that your scores do fluctuate, which shouldn’t cause concern unless there’s a big drop. That’s when you should check your credit reports to see what’s contributing to the fall, such as a late payment or identity theft.

Your FICO Scores are used the most. Although there are many different credit scores out there, FICO Scores are the most popular. They are used by 90% of top lenders, according to FICO’s site. If you’re applying for a loan, it’s likely (but not guaranteed) that the credit score the lender will rely on will be a FICO Score.

There are different versions of the FICO Score. Over the years, FICO has released updated versions of its credit scoring models. FICO Score 8 is the most commonly used model, but there are more recent versions, including FICO Score 9 and UltraFICO. FICO also has several other credit score models designed for specific products, including scores specifically for credit card, auto and mortgage lending.

For each FICO model, you’ll have three scores. That is, one score for each credit report as compiled by the three major credit bureaus. So your FICO Score 8 for your Experian report, for example, could be a different number than how the FICO Score 8 would score your Equifax report. If there is a discrepancy, that could be a sign that the information listed in one report differs from what’s in another.

How is a FICO Score calculated?

Fortunately, each of your FICO Scores is based on the same general blueprint. What improves one FICO Score is likely to improve your others, too.

Here’s a breakdown of how your credit report information is weighted by the FICO Score model, from myFICO.

Payment history: 35%

The biggest factor in determining your FICO Score is your payment history on all credit accounts listed on your report. Specifically, it will view on-time payments positively.

Late payments, delinquencies, overdue accounts or accounts sold to collection agencies will be viewed negatively.

Amounts owed: 30%

Carrying high balances relative to your credit limits on credit accounts will negatively affect your FICO Score, while keeping balances and credit utilization ratios low can have a positive effect. That’s why maxing out your cards will hurt your credit score, while keeping balances well below the recommended 30% of your credit limits will contribute positively to your FICO Scores.

Installment loans, such as car loans and mortgages, don’t factor into your credit utilization.

Length of credit history: 15%

When scoring the length of your credit history, FICO considers the age of your oldest and newest credit accounts and the average age of all accounts.

FICO Scores will favor credit reports that have longer histories of credit accounts on them, so try to establish and maintain your credit accounts over a long period. That’s why personal finance experts recommend keeping an older credit card account open and active — by charging something small on it every month and paying it off — to prevent the issuer from closing it for inactivity.

Credit mix: 10%

Another factor that FICO considers is your credit mix, or the number and types of accounts listed on your credit reports. Types of credit considered include credit cards, installment loans, retail accounts and mortgages, though you don’t need to have all these account types to score well.

Opening and positively maintaining credit cards is important, and having an installment loan listed also helps — but you should avoid borrowing just to improve your credit mix.

New credit: 10%

FICO considers new credit by looking at the most recent activity on your credit reports. Specifically, it will consider recent hard credit inquiries or newly opened accounts.

Each time you apply for new credit, the lender will generate a hard inquiry on your credit report when checking it to evaluate your creditworthiness. This hard inquiry knocks a few points off your credit score each time, though it falls off your credit reports after two years. Know that checking your own credit reports and scores are considered soft inquiries and do not negatively impact your credit.

To score well on new credit, consider how opening accounts can affect your score. Try to avoid hard inquiries when possible, and limit the effect of new accounts by opening one at a time and spacing out applications over six months to a year.

If you’re rate shopping for a car, student loan or mortgage over a 30- to 45-day period (depending on which version of the FICO Score a lender uses), multiple hard inquiries are lumped together as one.

How to start building your FICO Score

Once you know your FICO Score, you can see if you have a good credit score and start learning how to improve it. If you’re new to credit, you should start building a good credit score from scratch by either applying for a secured card, becoming an authorized user on someone else’s card or opening a store credit card.

Secured cards require a deposit, often starting at $200, that serves as your credit line. Once you build up a solid credit score, you can upgrade to an unsecured card, close the secured card and get your deposit back.

Or, if you have a family member with a stellar credit history, ask if you can be added to their card account. If so, the positive credit history of that account will be reported to your credit reports. Again, once your credit scores are high enough to qualify for a card of your own, you should get your own card and then ask the family member to remove you as an authorized user.

Store or retail cards are also often a good bet for those new to credit, as they tend to come with low limits and high interest rates — designed for riskier borrowers. If you borrow and repay regularly with a store card — and don’t max it out — your activity with that card will contribute positive information to your credit reports and scores.

With your new card, work on developing habits that will build credit, such as paying on time every month and keeping revolving balances paid off or very low.

You can also request and review free copies of your credit reports from each of the big three credit bureaus at AnnualCreditReport.com. Check for any errors or mistaken information, and consider disputing credit report errors.

It can take time to build a solid FICO Score, so patience is key — but it’s worth the effort when you next need credit.

Does everyone have a FICO Score?

Consumers who have a short credit history or few accounts on their credit reports might have a “thin credit file.” This is a term for consumers who don’t have enough information on their credit reports to generate a credit score, including with the FICO model.

Over 60 million Americans have thin credit files, according to Experian. If you’re among that group, you could end up with a poor credit score or unable to be scored by FICO. It can also make it difficult to get approved for new credit, whether it’s a credit card or home loan. And if you are approved, your thin credit file makes it more likely that you’ll get stuck with high interest rates that will make borrowing more expensive.

While it may seem like a Catch-22, to build a good credit score and history, you need to show that you can responsibly manage credit over a period of time. So, start small, as outlined above, and start building!

Where to get your FICO Score for free

There are a variety of ways to check your credit score for free, for both the FICO Score and the VantageScore. You can view your credit score for free with LendingTree Spring.

Many banks and credit card issuers, like Bank of America, Barclays, Citibank, Discover, PNC Bank or Wells Fargo, grant customers access to their FICO Score via their online portals.

Even if you’re not a customer of Capital One, the issuer offers a free online VantageScore that is updated every 30 days through its CreditWise program.

Credit bureau Experian also offers free access to your FICO Score, while Equifax and TransUnion require you to enroll into a free trial or paid credit monitoring service.