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What Is a FICO Score?
Let me explain what a FICO score really is. It's a credit score that lenders rely on to judge your creditworthiness, pulling from details in your credit history like how you've handled payments and your current debt levels.
Your FICO score falls between 300 and 850, and it's what lenders use to gauge the risk of lending to you. The higher your score, the better your chances of repaying debts on time, which makes you more appealing to lenders.
This score comes from the Fair Isaac Corporation, and it factors in five key areas: your payment history, how much you currently owe, the types of credit you use, how long you've had credit, and any new credit accounts. I'll walk you through how these scores function, how they're put together, and steps you can take to boost yours.
Key Takeaways
FICO scores quantify your creditworthiness based on your credit history, helping lenders decide on credit approvals. They're involved in 90% of U.S. mortgage decisions, with scores from 670 to 739 seen as good. To raise yours, focus on timely bill payments, using under 30% of available credit, and mixing credit types.
How FICO Scores Work
FICO is an analytics company that serves businesses and consumers, but it's most famous for its consumer credit scores that financial institutions use to decide on loans or credit issuance.
These scores play a role in many U.S. credit decisions. Even if you explain negative items on your credit report, a low FICO score often leads to loan denials. Many lenders, especially in mortgages, set strict FICO minimums—one point short, and you're out.
FICO Score Ranges
Scores go from 300 to 850. If yours is between 670 and 739, that's generally good, and lenders view it positively. But if you're in the 580 to 669 range, expect tougher terms or higher rates.
Lenders don't just look at your FICO score; they also factor in your income, job stability, and the credit type you're seeking to assess overall creditworthiness.
How to Improve Your FICO Score
To get a high FICO score, you need a variety of credit accounts and a solid payment record. Keep your usage well under your limits—aim for below 30% utilization.
Avoid maxing out cards, late payments, or frequent new credit applications, as these drop your score. Check your credit report regularly for errors; you're entitled to one free report yearly from the major bureaus.
Calculating FICO Scores
FICO weights categories differently per person, but typically: payment history at 35%, amounts owed at 30%, credit history length at 15%, new credit at 10%, and credit mix at 10%.
Payment history covers if you've paid on time, including any bankruptcies, collections, or late payments. Amounts owed look at your debt relative to available credit—owing a lot but not near limits is better than being maxed out.
Longer credit history generally helps, but good performance in other areas can offset a short one. Credit mix means having diverse accounts like cards, loans, and mortgages. New credit flags recent openings, which can signal risk if too many.
FICO Score vs. VantageScore
VantageScore, developed by the three main credit bureaus in 2006, is the primary alternative to FICO. It also scores from 300 to 850, using similar factors like payment history and utilization, but with different weights.
Your VantageScore might differ from FICO due to varying criteria—FICO needs older tradelines, while VantageScore is more flexible.
FICO Versions
FICO has updated its methods since 1989, and lenders choose which version to use. FICO Score 8 is still the most common, despite newer ones like 9 and 10 Suite.
Score 9, from 2016, handles medical collections and rentals more leniently. Score 10T uses trended data and might become more popular. Score 5 remains key in auto, card, and mortgage lending.
Score 8 rewards timely payments, low balances, and selective new accounts, while penalizing delinquencies and high utilization. It ignores small collections and is more forgiving of isolated late payments.
What Is a Good FICO Score?
Above 670 is above average, over 740 shows high responsibility, and above 800 is exceptional.
Which FICO Score Do Mortgage Lenders Use?
Commonly FICO 2, 5, or 4, but they also review your income, assets, and history.
How Often Does the FICO Score Update?
It depends on lenders' reporting—usually monthly, but more often with multiple active loans.
The Bottom Line
The FICO score is a top tool for gauging borrower creditworthiness, used in most U.S. mortgages. A low score hurts, but you can improve it through responsible borrowing and on-time payments.
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