What does FICO stand for?

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In a Nutshell

FICO® scores are part of the criteria that many financial institutions use to make lending decisions. Understanding the ways you use credit and how it can affect your scores is essential to improving and maintaining good financial health.

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FICO is an acronym for Fair Isaac Corporation, the company that developed the FICO® credit scoring models that many lenders use to help accurately predict a consumer’s ability to repay a debt on time.

FICO® scores were used in more than 90% of U.S. lending decisions, according to a CEB TowerGroup analyst report from May 2015. And in some states, insurance companies may use your credit reports to decide whether to grant you coverage and how much to charge.

If you’ve ever applied for a loan or credit card, you’ve probably heard the term FICO® score. But do you know how your scores are calculated and the way different behaviors can impact them?

Understanding how the financial decisions you make can affect your credit scores is crucial to maintaining good financial health. Before you apply for your next loan or credit card, let’s explore a few things you should know about your scores and how they can affect your ability to borrow money.


How are FICO® scores calculated?

Fair Isaac Corporation uses credit data reported to the three major consumer credit bureaus — Equifax, Experian and TransUnion — to calculate your scores. The information is divided into five categories, with each one representing a rough percentage of your scores.

  • Payment history (35%)
  • Amount of money you currently owe to creditors and the portion of available credit you’re using (also known as credit utilization) (30%)
  • Length of your credit history (15%)
  • How much new credit you’ve recently applied for (10%)
  • Mix of credit accounts (10%)

But keep in mind these are just guidelines. The importance of each of these factors varies based on a person’s unique credit history.

While these are generally the criteria used to generate your credit scores, your scores are not the only information lenders evaluate when you apply for a loan or a credit card. Lenders may request additional data from you, including your salary, length of time in your current job, occupation and other information that can help them make an informed lending decision.

What are the different types of FICO® scores lenders use?

There are 28 different FICO® scores across the three major consumer credit bureaus that lenders may use. They include base scores that provide a big-picture assessment of a consumer’s ability to repay a loan, along with industry-specific scores that predict a consumer’s likelihood to repay a certain type of loan, including auto, home and credit cards. Base FICO® scores range from 300 to 850, and industry-specific scores can range from 250 to 900.

Lenders can choose which scores they use based on the type of loan application they’re evaluating. For example, if a consumer is applying for a car loan, the lender may choose to use FICO® auto scores, which are designed to predict the likelihood of paying back an auto loan.

What is a good credit score?

You’ve probably heard that lenders consider consumers with higher credit scores to be less risky than those with lower scores. And typically, the higher your scores, the more likely you are to be approved for a loan and qualify for lower interest rates. But do you know how high your FICO® scores should be to be considered good?

FICO defines five credit score ranges based on FICO® Score 8:

FICO® score range Credit rating

579 and below

Poor

580–669

Fair

670–739

Good

740–799

Very good

800+

Exceptional

Many lenders will extend credit to consumers with scores in the fair range and above. But different lenders have different requirements, so it makes sense to shop around.

The good news is that as long as you consistently use credit responsibly, your credit is likely to improve over time.

How can I get my credit scores?

While the Fair Credit Reporting Act requires the three major credit bureaus to give consumers a free copy of their credit reports from the respective bureau each year, it doesn’t require them to provide your scores for free. If you want to get your scores from the credit bureaus, you may be required to pay for them.

But there are free ways to obtain your scores as well. For example, some credit card and auto loan companies give customers access to their credit scores. So you may be able to check your scores by looking at your monthly statements or logging into your account.

If not, there may be other ways to access your FICO® scores for free. And you can check your VantageScore 3.0 credit scores from TransUnion and Equifax on Credit Karma for free at any time. And because checking your scores on Credit Karma is a soft inquiry, it won’t affect your credit.


Bottom line

FICO® scores are one of the key factors used by many U.S. lenders to make credit decisions. Understanding how your borrowing and repayment history can affect your scores can be essential to taking control of your finances. Monitoring your credit reports and scores can help alert you to any changes you may need to make in order to maintain good credit health.