Understanding FICO Scores: A Comprehensive Guide

Many companies use credit scores when reviewing credit applications and managing accounts. One of the most popular types of credit scores is the FICO® Score. However, there are different versions of the FICO® Score, and companies can choose the version that best fits their needs. Here’s what to know about the different types of FICO® Scores, what factors into these credit scores, and why they’re important.

What Is a FICO® Score?

FICO was one of the first companies to create a credit score for lenders based on a consumer’s credit reports. The broad applicability and usefulness of the FICO® Score made it one of the most popular ways for companies to evaluate risk. The FICO® Score became so popular that the terms credit score and FICO® Score are often used interchangeably.

Over the years, FICO has developed different versions of its FICO® Scores:

• Base FICO® Scores: These scores, such as FICO® Score 8, FICO® Score 9, and FICO® Scores 10 and 10 T, range from 300 to 850 and predict the likelihood that a person falls behind on any type of credit account.
• Industry-specific FICO® Scores: FICO creates industry-specific scores for auto lenders and credit card issuers. These scores range from 250 to 900 and are built on top of the new base scores.
• FICO® Scores that use alternative data: The UltraFICO® and FICO XD scores consider data that isn’t traditionally found in your credit report, such as utility payments and banking history data, if you agree to connect your bank account. These scores range from 300 to 850.

Additionally, FICO breaks down its scores into score ranges, which companies and people can use to determine if someone has poor, good, or exceptional credit. The industry-specific scores extend the poor and exceptional ranges, so poor is 250 to 579 and exceptional is 800 to 900. But the base model breakdowns are as follows:

How Is a FICO® Score Calculated?

Most FICO® Scores are based solely on the information in one of your credit reports from the major credit bureaus: Experian, TransUnion, or Equifax. FICO shares how different factors influence the average person’s FICO score, which can help you if you’re working to improve your credit. However, the specific scoring calculations are a trade secret, and the influence of different factors can vary depending on what’s in your credit report.

• Payment History (35%): Your payment history with credit cards and loans is the most important factor in your FICO® Scores. Paying your bills on time is one of the best ways to improve your credit scores. Late payments, collection accounts, and filing for bankruptcy could hurt your FICO® Score.
• Amounts Owed (30%): How much you owe, the balances on different types of credit accounts, and the number of accounts with balances can affect your FICO® Scores. Your credit utilization ratio—the portion of available credit you’re using on revolving accounts, like credit cards—can also be a significant factor. Paying off accounts and having a low utilization rate is best for your FICO® Scores.
• Length of Credit History (15%): The length of your credit history refers to the age of the open and closed accounts in your credit report. The average age of your accounts and the ages of your oldest and newest accounts could be factors. A longer credit history is a plus.
• Credit Mix (10%): Your credit mix refers to your experience managing different types of credit accounts, such as credit cards and installment loans like an auto loan or mortgage. Having experience with different types of credit can help your FICO® Scores.
• New Credit (10%): Lenders typically consider it a red flag if you apply for or open several new credit accounts in a short period. Even applications that are denied could hurt your FICO® Scores because the hard inquiry from the credit check still gets added to your report.

FICO® Score vs. VantageScore

FICO® Scores are used by 90% of top lenders, according to the company. However, companies can also use VantageScore® credit scores when reviewing applications and managing customers’ accounts. Some companies also create and use custom scoring models instead of, or alongside, a FICO® Score or VantageScore credit score.

There are many similarities and several differences between the FICO and VantageScore models:

• Number of Scores: FICO has dozens of scoring models, with over 40 versions of the FICO® Score. VantageScore has five scoring models: VantageScore 1.0 through 4.0 and 4plus.
• Score Ranges: Most FICO® Score and VantageScore credit scores use the 300 to 850 range. The FICO industry-specific scores range from 250 to 900. Older VantageScore 1.0 and 2.0 models used a different range (501 to 990), but VantageScore models have ranged from 300 to 850 since 2013.
• Scoring Factors: Most FICO and VantageScore credit scores use the same underlying data to try to predict the likelihood that someone will miss a bill payment in the following two years. However, the scoring models consider and weight information differently.

Why Are FICO® Scores Important?

Your FICO® Scores can affect many decisions and offers, including:

• Whether you get approved for a new loan or credit card
• Your interest rate and fees on new credit accounts
• Your loan amount or credit limit
• Whether you can rent a home or apartment
• The security deposit when you rent a home or apartment

Improving your FICO® Scores can help you get approved and receive better offers.

How to Get Your FICO® Score for Free

You can get your FICO® Score 8 from Experian for free with ongoing score tracking. If you want additional scores, such as industry-specific scores, look into Experian’s paid premium memberships. You may also be able to see one of your FICO® Scores for free from your lender, credit card issuer, or financial counselor. FICO has an online list with many of the companies that participate in its FICO® Score Open Access program, which allows companies to share the FICO® Score that they receive with their customers.

Frequently Asked Questions

What Is a Good FICO® Score?

A good FICO® Score generally falls within the range of 670 to 739. However, the exact definition of a “good” score can vary depending on the lender and the type of credit you’re applying for.

Why Do I Have Different FICO® Scores?

You can have different FICO® Scores because there are multiple versions of the FICO® Score, and each version can be tailored to different types of credit. Additionally, your scores can vary based on the credit bureau that provides the data.

How to Improve Your Credit Score

Improving your credit score involves paying your bills on time, reducing your credit card balances, avoiding new credit inquiries, and maintaining a mix of credit types. Regularly checking your credit report for errors and disputing any inaccuracies can also help.

At O1ne Mortgage, we understand the importance of a good credit score in securing favorable mortgage terms. If you have any questions or need assistance with your mortgage needs, don’t hesitate to call us at 213-732-3074. Our team of experts is here to help you navigate the complexities of the mortgage process and find the best solutions for your financial situation.

Remember, a strong credit score can open doors to better financial opportunities. Take control of your credit today and let O1ne Mortgage guide you on your journey to homeownership.