What’s In A Number? All About Your FICO Score, And How It’s Calculated


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Credit scores and histories can be a confusing maze of numbers, reports, and conflicting information, making it difficult to stay up-to-date with your credit profile. Still, it’s important to understand what a FICO score is and how it compares to other credit scores.

The word “FICO” refers to the Fair Isaac Corporation, founded by Bill Fair and Earl Isaac in 1956. While the four-letter word is often used interchangeably with the consumer credit term “VantageScore,” they aren’t actually the same thing.

The best way to grasp the difference between a FICO score and a VantageScore is to understand that they’re calculated using slightly different formulas — even though they both have a scoring range of 300 to 850.

How is your FICO score calculated?

Your FICO score is calculated using five categories of data. However, not all categories are created equal.

The most important element is your payment history, which counts for 35% of your FICO score. The equation is quite simple — never miss a payment and you’ll be a star student. This applies to all your bills, from utilities to credit cards and student loans.

Next up is amounts owed, which accounts for 30 percent of your FICO score. This number is important because it shows how disciplined you are when it comes to using (or not using) the credit at your disposal. For instance, if you have a $10,000 spending limit on your credit card but have a revolving balance of $9,000, you’re seen as a higher risk than someone who never uses more than 30% of their available credit.

The length of your credit history is also important, accounting for 15% of your FICO score. Generally speaking, a longer history will increase your score. The amount of time you’ve had your oldest and newest accounts will be considered in the equation, as well as the average age of all your accounts.

Hovering at a weight of 10% each are the categories of credit mix and new credit. Credit mix is exactly as it sounds — the mix of your credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. Although it’s good to show that you’ve responsibly managed a variety of accounts, it’s not advised to open accounts simply for diversification reasons.

Meanwhile, new credit refers to your latest accounts, and how many recent inquiries your file has seen. It’s important not to open new accounts too rapidly, as they will lower your average account age and likely cause your FICO score to dip.

Why is your FICO score important?

FICO scores are used by 90% of top US lenders, according to myfico.com. This means there’s a huge chance creditors will pull your FICO score when you apply for a mortgage. Government mortgage agencies Fannie Mae and Freddie Mac both rely on the FICO score.

It’s worth knowing that there are also industry-specific FICO scores, so lenders looking to give you a car loan may be more focused on your auto score than your classic score. That scale has its own range, from 250 to 900.

It’s a great idea to check both your VantageScore and FICO score, especially if you’re planning on borrowing money. Checking your VantageScore can be done at websites including Credit Sesame and TransUnion.

You can check your FICO score through Experian’s CreditWorks Premium program, which also includes credit score tracking, monthly bureau updates, and credit monitoring.

It’s important to remember that you have a different FICO score at each of the three major credit bureaus – Experian, Equifax, and TransUnion. Each score is based only on information held by that individual bureau, so your numbers will likely vary from agency to agency. However, discrepancies between the three numbers should be marginal, presuming each bureau has up-to-date, accurate information about your credit history.

If your score isn’t as high as it could be, there are steps you can take to improve it quickly. Those include making sure you pay all your bills on time and reducing the amount of credit you owe.

At the end of the day, you’re certainly more than a three-digit number in a database. However, making strides to improve that number is a great investment in your financial future.