Is a FICO Score Different Than a Credit Score?
Demystify the link between FICO and credit scores. Discover why multiple scores exist and what factors universally shape your financial standing.
Many individuals often use the terms “FICO score” and “credit score” interchangeably, leading to confusion. A FICO score is a specific brand of credit score, and understanding this distinction is important for navigating personal finance. This article aims to clarify the relationship between FICO scores and other credit scores.
Understanding FICO Scores
FICO stands for the Fair Isaac Corporation, which pioneered the development of credit scoring systems. Fair Isaac Corporation introduced its first consumer credit score in 1989. This model quickly became the most widely used in the United States, with over 90% of top lenders utilizing FICO scores.
A FICO score is a numerical representation of an individual’s creditworthiness, helping lenders assess the likelihood of a borrower repaying a loan on time. These scores typically range from 300 to 850, where a higher score indicates lower credit risk. The score is generated from information in a consumer’s credit reports maintained by the three major credit bureaus: Equifax, Experian, and TransUnion.
Understanding Other Credit Scores
While FICO scores are predominant, “credit score” is a broader term encompassing various scoring models. The most notable alternative to FICO is VantageScore. Developed in 2006 by the three major credit bureaus, VantageScore offers another widely used assessment of credit risk.
Different scoring models, including various FICO versions like FICO 8 and FICO 9, employ distinct methodologies or weigh credit factors differently. This can lead to variations in a consumer’s score depending on the specific model used. Both FICO and VantageScore models use data from consumer credit files to predict loan default, typically presenting scores within the 300 to 850 range.
Factors Influencing Your Credit Scores
Credit scores, regardless of the specific model, are primarily derived from information in your credit reports. Five universal categories of information consistently influence nearly all major credit scoring models. Payment history is the most impactful factor, typically accounting for 35% of a FICO score, emphasizing timely payments on all credit obligations. Accounts sent to collections or instances of bankruptcy can significantly harm scores.
Amounts owed, also known as credit utilization, is another substantial factor, making up about 30% of a FICO score. This considers total debt relative to available credit; keeping credit card balances low, ideally below 30% of the credit limit, is advised. The length of credit history, which includes the age of accounts and time since last activity, contributes approximately 15%. A longer history of responsible credit management can be beneficial.
New credit, representing recent applications and newly opened accounts, accounts for about 10% of a FICO score. Numerous hard inquiries or opening multiple accounts in a short period can negatively affect scores, as this may signal increased risk. Credit mix, which assesses the variety of credit accounts such as installment loans and revolving credit, contributes around 10%. Demonstrating responsible management across different account types can be favorable.
Why Multiple Scores Matter
Consumers often encounter various credit scores because different lenders may use distinct scoring models or even different versions of the same model. For instance, while FICO Score 8 is widely used, FICO Score 9, which treats paid collections and medical debt differently, is also in circulation. Lenders may also utilize industry-specific FICO scores tailored for auto loans or credit cards.
The specific credit report used by a scoring model can also cause variations, as creditors may report to one, two, or all three major credit bureaus at different times. A consumer’s score can therefore fluctuate depending on which bureau’s data is accessed and the exact timing of the calculation. Consumers should focus on cultivating healthy credit habits, as these foundational elements will positively influence all credit scores, regardless of the model or version.