Although you might hear the phrase “your credit score” tossed around, you actually have multiple credit scores—potentially hundreds. Of these, a FICO® score is probably the most common and well known. It’s named for the company that calculates the score: the Fair Isaac Corporation.
Companies use your FICO score when deciding whether to do business with you. Someone might check your score if you’re trying to:
A higher score signals that you’re responsible with your money and you typically pay your bills on time, while a lower score can signal that you’re a habitual payment-misser. Those with high scores usually get lower interest rates on loans and credit cards, while those with poor credit might have trouble getting approved for loans and cards in the first place.
FICO scores can range from 300 to 850—the higher, the better.
There are five main factors that go into your FICO score, and some are more important than others:
|Weighting in your score
|What is it?
|Have you made payments on time in the past, or have you missed payments?
|Do you max out your cards or only use a small portion of your total credit limit?
|Length of credit history
|Do you have a long or short credit history? (Longer is better.)
|Have you applied for 20 new credit cards in the last month, or do you use new credit sparingly?
|Have you only ever managed a credit card, or do you also have a track record with student loans, a mortgage, or other types of loans?
While FICO scores are the most well-known and prevalent type of credit score, they’re not the only game in town. Some lenders instead use the VantageScore.
Both are a snapshot of all the information included in your credit report. However, there are a few key differences between the two:
The FICO score is one of the most well-known and widely used credit score models. Banks, lenders, and other companies use this number to determine your responsibility when it comes to borrowing and repaying money. Those with higher scores can usually obtain lower interest rates and more financing options, while those with low scores could have difficulty borrowing money.