What is a FICO score?

Your credit score affects everything from whether your next credit card application gets accepted to how much interest you’ll pay on your mortgage. There are different types of credit scores, but when people talk about scoring models, they usually mean FICO scores.

To get a handle on your credit, it’s important to know what a FICO score is, how it’s calculated and what counts as a good score. When you understand what goes into your most common credit score, you can learn strategies for improving it.

What FICO scores are

FICO scores are the most widely used credit scores. According to the Fair Isaac Corporation (FICO), these scores are used by 90 percent of top lenders to make credit-related decisions. That means that when you apply for a credit card, mortgage or personal loan, the lender will likely check your FICO score.

A good FICO score shows lenders that you’re a responsible borrower who can be trusted to repay debts on time. That can lead to lower interest rates, more favorable loan terms and even better credit card rewards.

FICO score ranges

FICO scores range from 300 to 850. Within that range, scores are classified into five categories: excellent, very good, good, fair and poor.

800-850: Excellent credit score

People with FICO scores between 800 and 850 have near-perfect credit. Earning an excellent credit score shows lenders that you’re a very responsible borrower. Lenders are more likely to offer you favorable loan terms and interest rates. According to the Experian, 21.9 percent of American consumers are in this category.

740-799: Very good credit score

People with FICO scores between 740 and 799 have above-average credit. If you’re among the 28.1 percent of American consumers with a very good credit score, you’re eligible for nearly all of today’s best credit cards. You can also look forward to lower interest rates on loans and mortgages.

670-739: Good credit score

People with FICO scores between 670 and 739 — which includes 21.6 percent of American consumers — have good credit. A score in this range proves to lenders that you can manage debt responsibly. Lenders will likely accept credit card or loan applications from borrowers in this range, but you may not qualify for the best interest rates and terms.

580-669: Fair credit score

People with FICO scores between 580 and 669 have fair credit. The 15.8 percent percent of consumers in this range may not have as many borrowing options as people with good scores. You may find you’re not eligible for certain credit cards or mortgages, though the good news is that many lenders will still approve loans with this score.

300-579: Poor credit score

People with FICO scores between 300 and 579 have poor credit. A score in this range is sometimes called “bad credit” because it warns lenders that you may be a risky borrower.

You may have trouble getting approved for credit — unless you’re applying for cards specifically designed to help you rebuild your credit. About 12.6 percent of consumers are in the same boat.

How FICO scores are calculated

Your FICO score is calculated based on the information in your credit report. This information is grouped into five categories: payment history, amounts owed, length of credit history, credit mix and new credit. Each category has aweight in the FICO formula.

Payment history (35 percent)

Your payment history shows how well you’ve paid your credit cards, retail accounts, installment loans and mortgage loans as agreed. It’s weighted so heavily because past behavior is the best predictor of future behavior. A history of on-time payments helps your score, while late payments, collections accounts and bankruptcies have the opposite effect.

Amounts owed (30 percent)

Your amount owed refers to both how much debt you carry in total and the amount proportion of available credit you’re using. FICO weighs this category heavily because the amount you owe affects your ability to make monthly debt payments on time.

Length of credit history (15 percent)

The length of your credit history refers to how long you’ve had and used credit. The FICO scoring model considers factors like the age of your oldest account and the average age of all your accounts.

A longer credit history positively impacts your FICO score because it shows you have experience managing debt.

Credit mix (10 percent)

Your credit mix refers to the various types of credit accounts you have. Credit accounts fall into two main categories: revolving and installment. Revolving accounts include credit cards and home equity lines of credit, while installment accounts include mortgages, car loans and student loans.

Having a good mix of account types shows that you can successfully manage different types of debt.

New credit (10 percent)

Your FICO score considers how many new credit accounts you’ve opened, as well as how many of your accounts are new. This is a relatively minor factor, and since FICO only considers credit inquiries from the past 12 months, the impact on your score is fairly short-lived.

How lenders use your FICO scores

Lenders use your FICO scores to quickly and objectively determine the risk of offering you credit. A higher FICO score shows you’re more likely to repay money as agreed, so the lender may be willing to offer a higher credit limit or lower interest rate.

Other potential creditors, like landlords, cell phone providers and utility companies, also use FICO scores to assess the risk that you won’t pay on time. People with low FICO scores may have trouble entering into contracts or be required to pay a security deposit.

The different FICO versions

There are multiple versions of FICO scores available. The most widely used version is FICO Score 8, though some lenders have upgraded to the company’s newer models, like FICO Score 9 or FICO Score 10.

To better meet the needs of lenders, there are also industry-specific FICO scores. For example, if you’re refinancing a car loan, a lender might check your FICO Auto Score. If you’re applying for a credit card, a lender might check your FICO Bankcard Score.

While you have more than one FICO score, you don’t necessarily need to keep track of all of them. FICO says all its models share a similar foundation. If one FICO score is high, your other FICO scores will likely be high.

FICO vs. VantageScore

FICO is not the only service that provides credit scores. VantageScore is another common credit scoring model. The three credit reporting bureaus created it as an alternative to the FICO score.

Like FICO, VantageScore assigns consumers a credit score between 300 and 850 based on the information in their credit reports. However, VantageScore considers different scoring factors and weights them differently. For that reason, your FICO score and VantageScore will likely vary.

How to improve your FICO score

There is no quick fix to improve your FICO score, though there are many strategies you can use to improve or rebuild your score over time. Here are some tips to start improving your score:

• Fix errors on your credit report: Errors can include incorrect credit limits, accounts that belong to someone else or negative marks that should have already fallen off the report. Contact the credit bureaus or work with a credit repair company to get the errors fixed.
• Keep your credit card balances low: The FICO model weighs the amount you owe heavily. To improve your score, pay down outstanding debt and aim to keep your credit utilization ratio at 30 percent or lower.
• Make payments on time: Since your payment history makes up 35 percent of your FICO score, making payments on time, every time is crucial for building a good credit history.

The bottom line

A good credit score helps you access the credit cards, loans, mortgages and other financial products you need. Since FICO scores are the most widely used credit scores, it makes sense to focus on FICO if you’re interested in building or improving your credit. To find out where you stand, check your FICO score.

Frequently asked questions

• How can I see my FICO score?

  You can see your FICO score through any credit bureaus — Equifax, Experian or Transunion — or from FICO itself. If you want to get a free FICO score, check with your bank or credit card issuer. Many financial institutions partner with FICO to provide free scores to their customers.

• What is the average FICO score?

  According to the most recent data from FICO, the national average FICO score is 717. Since scores between 670 and 739 are considered good, that means the average consumer has good credit. If your score is below the national average, there are ways to improve it, including paying your bills on time and paying off debt.

• How long does it take to repair your FICO score?

  The time it takes to increase your FICO score will vary depending on your credit history. It can take months or years to repair your credit. Some types of negative information, like late payments, foreclosures and collection accounts, stay on your credit report for seven years. A bankruptcy can affect your score for up to 10 years.