A Comprehensive Guide: FICO vs Credit Score
Acceptance for a car loan or credit card can be intimidating, especially if your lender mentions your FICO score or credit score. What are these scores? How do they affect your ability to get approved? We compare the two most popular credit scores in the United States and explain how and why they are used in this guide.
A credit score is a numeric indicator of an individual’s propensity to repay debt. The higher a person’s score is, the more likely they are to repay their debts in full and on time. A good credit score opens the door to low-interest loans and high credit limits, so it’s important to monitor your score. There are three major credit reporting agencies-Equifax, Experian, and TransUnion-that calculate scores based on information in a consumer’s credit report. However, only Fair Isaac Corporation (FICO) calculates the scores lenders use. FICO has multiple versions of its scoring model, each of which uses a unique formula to calculate a score. But all FICO models rely on five factors: payment history, amounts owed, length of credit history, new credit accounts opened, and types of credit used. View here for more details on this product, so check it out.
Your credit report will include your FICO score from each of the three credit bureaus each month. Fair Isaac Corporation’s FICO scores range between 300 and 850. Most lenders use FICO scores to determine whether or not to make a loan; if your score is too low, you may not be approved at all. Credit scores are used more broadly than FICO scores-credit card companies, landlords, employers and others can also check them-and they’re calculated differently. Your credit score is usually comprised of several different scores from three major reporting agencies: Equifax, Experian and TransUnion. Each agency computes its own version of your score based on information in their records about how you pay bills, what types of accounts you have open, and how long those accounts have been open. Because each agency’s information is slightly different, it is possible to have a high score with one agency and a low score with another. View here for more info.
The most important thing to remember when looking at credit scores is that there isn’t just one good or bad number. Lenders set their own loan approval criteria; some will approve borrowers with lower credit scores, while others will not touch anyone below a certain threshold. Rather than obsessing over a single number, examine your credit score report and ensure that everything appears to be in order. If you notice anything out of place-or something that does not belong to you-report it right away so that it can be removed. You should also keep track of where your scores stand over time, so you know if any sudden changes could mean trouble down the road.
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