FICO Credit Scores Explained

FICO scores are the most widely used credit scoring model

FICO is perhaps the most recognizable name in credit scores. The Fair Isaac Corporation (now called FICO), which developed the FICO credit scoring algorithm, says its scores are used by 90% of top U.S. lenders in 90% of lending decisions. There are currently several types of FICO scores available. The most widely used model is FICO 8, though the company has also created FICO 9 and FICO 10 Suite, which consists of FICO 10 and FICO 10T. There are also older versions of the score that are still used in specific lending scenarios, such as for mortgages and car loans

Key Takeaways

  • FICO scores are the most widely used credit scores in the U.S. for consumer lending decisions. 
  • There are multiple FICO credit scoring models, each of which uses a slightly different algorithm.
  • FICO scores are based on the information collected on individual consumers by the three major credit bureaus, including their payment history, credit utilization, and the age of their accounts. 

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How FICO Scores Work

FICO scores were introduced in 1989. The company uses information found in individual consumers’ credit reports to calculate credit scores for them. These scores are then used by lenders to gauge each consumer’s creditworthiness and determine whether to approve applications for loans, credit cards, and other borrowing. 

FICO scores range from 300 to 850, with 850 considered a perfect score. The higher your score, the better your odds of being approved for loans and lines of credit at the most favorable interest rates.

FICO scores are based on these five factors:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Credit mix (10%)

Individuals can have more than one FICO score. The multiple FICO score versions in use today include:

  • FICO 2
  • FICO 3
  • FICO 4
  • FICO 5
  • FICO 8
  • FICO 9

Each scoring model may be used in different lending situations. FICO scores 2, 4, and 5, for example, are used by both mortgage and auto lenders to determine borrowers’ creditworthiness. Currently, the most common FICO score is FICO 8. This version also can be used in auto lending, as well as for personal loan and credit card decisions.

Each of the three major credit bureaus—Equifax, Experian, and TransUnion—generates consumer credit reports, which then are used to calculate FICO credit scores. You might have different FICO scores for each bureau, based on the information that’s being reported to them by your creditors. 

FICO announced the FICO 10 Suite, consisting of FICO 10 and FICO 10T, in January 2020. It has now been released to lenders.

What Is a Good Credit Score?

FICO rates its scores as exceptional, very good, good, fair, and poor. The table shows which scores are associated with which rating.

FICO Score Ratings
Exceptional 800 to 850
Very Good 740 to 799
Good 670 to 739
Fair 580 to 669
Very Poor 300 to 579

What Is FICO 8?

FICO 8 is still the most widely used FICO credit score today. If you apply for a credit card or personal loan, odds are that the lender will check your FICO 8 scores from one or more of the major credit bureaus. 

FICO 8 is unique in its treatment of factors such as credit utilization, late payments, and small-balance collection accounts. Here are some key things to note about FICO 8:

  • This scoring model is more sensitive to higher credit utilization (meaning the amount of your available credit that you’re using at any given time). 
  • Isolated late payments on your credit report may not count against you as much as having multiple late payments. 
  • Small-balance collection accounts in which the original balance was less than $100 are ignored for credit scoring purposes.

It’s also worth pointing out that there are different versions of FICO 8. With FICO Bankcard Score 8, which is used when you apply for a credit card, the focus is on how you’ve handled credit cards in the past. FICO Auto Score 8, on the other hand, doesn’t emphasize credit card activity and history as heavily.

Regardless of which FICO credit scoring model is involved, the same rules apply for maintaining a good score. These include paying bills on time, maintaining a low credit utilization ratio, and applying for new credit sparingly.

What Is FICO 9?

FICO 9 was introduced in 2016 and is available to both lenders and consumers. While not as widely used as FICO 8, this scoring model has some features that could help certain consumers improve their credit scores. 

Here are the most noteworthy aspects of FICO 9:

  • Third-party collection accounts that have been paid in full no longer have a negative impact for credit scoring. 
  • Unpaid medical collection accounts have less of a negative impact compared with other types of unpaid collection accounts. 
  • Rental history can now be factored into FICO 9 credit scores, which may help people with limited credit history.

FICO 9 credit scores are available to consumers for free through lenders that participate in the FICO Score Open Access program. Your credit card company, for example, may offer free FICO 9 credit scores as one of its customer benefits. Otherwise, you’ll need to purchase your scores from FICO. 

Rent payments aren’t factored into FICO 9 scores automatically. Your landlord has to report your payment history to one or all three of the major credit bureaus for your rent payments to be included. 

What Are FICO 10 and FICO 10T?

FICO 10 and FICO 10T are new credit scoring models announced in 2020. FICO says the FICO Credit Score 10 Suite is designed to be its most predictive scoring model yet, giving lenders a more precise picture of someone’s credit risk. FICO 10 and FICO 10T still follow the same basic FICO algorithm that focuses on payment history, credit utilization, credit age, credit mix, and credit inquiries. What makes FICO 10T different is the use of trended data.

Trended data looks at a person’s credit patterns for the previous 24 months or longer. It takes into account things such as whether you carry a balance on your credit cards from month to month or always pay in full, and whether you’ve consolidated debts at any point during that time period. 

The company expects FICO 10 and FICO 10T to eventually overtake FICO 8 as the most popular scoring models.

FICO Credit Scores vs. Other Credit Scores

While FICO scores dominate the credit scoring business, they’re not the only product out there. The three major credit bureaus launched a competitor, VantageScore, in 2006. Its scores originally ranged from 501 to 900, but VantageScore 3 adopted the same 300-to-850 range as the FICO score. Like the FICO score, it is calculated using information from your credit reports, but it weights the various factors differently.

Credit usage, account balances, and available credit are extremely influential in calculating VantageScores. Credit mix and experience are highly influential, while payment history is only moderately influential. Credit age and inquiries for new credit carry the least weight for VantageScore calculations.

As with FICO scores, there are several different VantageScores, the most recent being VantageScore 4.0. Some credit card issuers, such as American Express, and other companies that offer free credit scores to their customers provide VantageScores rather than FICO scores.

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