What is a FICO Score? Everything You Need to Know

Quick, what is a FICO score?

It’s completely normal to be at a loss for words right now. FICO is one of many random words people throw around when they’re talking about credit scores, the kind of random words you don’t use in any other conversation ever.

There’s Equifax. TransUnion. Experian. VantageScore. And a bunch of other words that don’t have much place outside a discussion about credit scores.

So, getting back to the original question: What is a FICO score? Answering that question is a matter of breaking the response down into several small sections that help you understand what this credit score is all about:

  • What does FICO stand for?
  • How are FICO scores calculated?
  • What types of FICO scores are there?
  • What is a good FICO score?
  • How is a FICO score different than a credit score?
  • How can you get a free FICO score?

As we answer each of these questions, you’ll start to get a good idea of what a FICO score is and how you can use it to your advantage.

What Does FICO Stand For?

The acronym “FICO” stands for Fair, Isaac & Co. Why Fair and Isaac? Those are the names of the two men who founded the company back in 1956: mathematician Earl Isaac and engineer Bill Fair.

The two men, FICO says, believed that companies could better assess someone’s risk level by leveraging data that’s “used intelligently.”

The two men generated their first FICO score in 1958 but it wasn’t until 1970 that they created a score that banks could use to set rates for credit cards, FICO’s history page says.

What Is a FICO Score?

If we were to define “FICO score”, we’d say it’s a scoring model created by FICO and used by credit bureaus, lenders, and car insurance companies to determine how likely you are to pay back your debts on time or, in the case of car insurance companies, how likely you are to get in a car wreck.

But here’s the problem with that definition: There isn’t just one FICO score.

Just like how there are many credit scores – FICOs being some of them – there are many FICO scores and each one has a different purpose than the other.

In some cases, new FICO score models are created in order to keep up with the changing consumer landscape.

“FICO has redeveloped its scoring formula several times to keep up with this changing consumer landscape, ensuring that it remains an intuitive predictor of credit risk,” FICO’s website says.

Other models are created for specific industries. How many different scores are there? We’ll answer that in a few minutes, but let’s take a moment to discuss how your FICO score is calculated.

How Are FICO Scores Calculated?

There are more than 100 factors that affect your FICO scores, but, according to FICO themselves, there are five main factors that can cause big fluctuations in your scores:

  1. Payment history: 35%
  2. Credit utilization: 30%
  3. Credit length: 15%
  4. New credit: 10%
  5. Type of credit: 10%

Payment History

Have a late payment of 30, 60 or 90 days on your credit report? Do you have accounts that went to collections? Your FICO scores will take a pretty decent hit, sometimes as much as 25 points for every infraction.

Each of these late payments or collections accounts is called a delinquency, and they’re bad news if you want to get a good rate on a loan or credit card.

You see, a consumer with super-late payments on their record is a huge red flag to lenders. They see late payments and they think you are unreliable. So, they decrease the perks they offer you and increase the interest rate. These higher rates cost you more money in the long run, but we’ll get to that in a few minutes.

Credit Utilization

FICO scores can also fall or rise pretty drastically depending on how much of your credit limit you’re using.

The rule of thumb is that responsible consumers are using 30% or less of their credit limits.

For example, carrying a balance of $3,000 on a card with a $6,000 credit limit is using 50% of that limit. This, lenders say, is riskier behavior. The higher the balances, they think, the more likely you’re running up your credit cards because you don’t’ have enough cash to pay for expenses.

Credit Length, New Credit, and Type of Credit

These last three factors play a much smaller role in your credit score and usually aren’t a problem for most middle-aged consumers.

Credit length is the average length of all your credit/loan accounts, while new credit indicates new accounts opened in the past six months and type of credit is the mix of debt you have (credit cards, auto loan, mortgage, student loans, etc.).

Types of FICO Scores

The most comprehensive collection of FICO scores is located on FICO’s website, where they have a chart that indicates which industries use which FICO models.

They split their scoring models into five different categories:

  • Most widely used: FICO Score 8
  • Auto lending scores: FICO Auto scores 2, 5 and 8
  • Credit card scores: FICO Bankcard Score 8 and 2-5, FICO Score 3
  • Mortgage scores: FICO Score 2, 5 and 4
  • Newest scores: FICO Score 9, FICO Autoscore 9 and FICO Bankcard Score 9

Now, certain scoring models – the Bankcard Score, for example – have several different versions. These versions differ because they’re created for each of the three credit reporting bureaus: TransUnion, Equifax and Experian.

Since these three bureaus gather slightly different information about your credit history, they need different scoring models.

No score is better than the others, and just because a score is newer doesn’t mean that it will make your FICO scores jump higher or lower.

FICO says, for example, that, even though they launch new scoring models, the companies who adopt those models may do it after a short time or may take months or years to make the change.

When those changes come, though, they tend to make headlines. For example, in 2014 FICO announced the FICO 9 scoring model. The big change? The model wouldn’t factor in medical accounts that went to debt collection.

Collections accounts can seriously hamper your FICO scores, so when this news came out, it was a pretty big deal. Even though it wasn’t a guarantee that big financial institutions would adopt FICO Score 9, the new model was a positive for millions of consumers.

Here’s how the Los Angeles Times put it in their April 2014 article on FICO 9:

“(FICO) says that by separating out medical debt-collection issues — which are commonplace negatives in millions of consumers’ credit files — from other types of collection actions, the FICO 9 model will more fairly rank the actual risks posed by some applicants compared with others. For borrowers whose sole major negative credit file account is an unresolved medical debt, Fair Isaac estimates that the new model will increase scores by a median 25 points.”

FICO Score vs. Credit Score

Another common question people have is how their FICO scores differ from their credit scores.

It’s a great question because, as we mentioned earlier, there is so much unique terminology and scoring/bureau names that it’s hard to know which is which.

So, here’s the simple explanation. FICO scores are like a breed of dog among all the other dog breeds in the canine world. You’ve got your VantageScore, your national equivalency score, and your Beacon scores, all of which fall under the “dog” umbrella but are their own special breed.

And, just like dog breeds, each individual credit scoring model and the variations within have their own unique traits. Some models are more heavily affected by certain factors than others are.

What is a Good FICO Score?

FICO scores range from 300 to 850.

Ideally, you want to have scores above 800 because these are considered “excellent” scores and will, most likely, get you the lowest possible interest rates and best offers on loans and credit cards.

Here’s a quick breakdown, via FICO’s consumer website, of the different categories of FICO scores:

  • 800+: Excellent
  • 740-799: Very good
  • 670-739: Good
  • 580-669: Fair
  • 579 and below: Poor

While these numbers are a strong indicator of your reliability, there’s another factor – among many – that lenders take into account: delinquency meta-data.

Basically, number crunchers have discovered that only 1% of people with excellent scores will be delinquent, while 2% of Very Goods and 8% of Goods will be delinquent.

Around 28% of Fairs will be delinquent and 61% of Poors will be delinquent.

As you can see, the lower the score, the higher the chances you’ll be really late at least once.

How does this affect your score? To figure that out, we used FICO’s loan savings calculator. Here are the FICO scores, rates, and interest you can expect on a 60-month, $25,000 auto loan at the time of publishing:

FICO score Rate Interest
Excellent/Very Good (720-850) 3.562% $2,329
Good (690-719) 4.914% $3,248
Good (660-689) 6.984% $4,690
Fair (620-659) 9.69% $6,642
Fair (590-619) 13.99% $9,902
Poor (500-589) 15.137% $10,793

As you can see, there are big jumps in interest rates at each level of FICO score. You’ll notice, too, that auto loan lenders split up Good and Fair into two subcategories.

This gives them the opportunity to bump up interest rates even more. For example, a 680 FICO score will get an APR that’s 2% higher than a 700 even though FICO considers both scores “Fair”.

And, in the Fair range, the interest rate difference is even bigger. A 630 score might get a 9.69% interest rate, while a 610 could get a 13.99%.

What’s the lesson here? It literally pays to have better credit scores. According to FICO, the difference between a score of 710 and 650 may only be 60 FICO points, but it could cost you twice as much in interest payments.

With so much money at stake, you should know where you can get a free FICO score.

Where Can You Get a Free FICO Score?

Finding a website that gives you free FICO scores isn’t as easy as you think. Sure, plenty of websites offer free credit scores, but, as we’ve mentioned a few times, there are so many scoring models out there that it’s hard to know which ones mean what.

To simplify things, we recommend weeding out everything but FICO scores. There are two reasons for this. First, FICO says that 90 of the nation’s top 100 lenders use FICO scores when figuring what kind of rates and loan amounts they want to give you.

Second, focusing on FICO scores makes your search much simpler. Instead of having to sift through dozens of options, you can just check out the sites we cover in an article we wrote that compares free credit score websites:

  • Bank of America: Free FICO score w/B of A credit card
  • Discover: Free “Credit Scorecard” for anyone
  • Barclays: Free FICO score w/Barclays credit card

Bank of America’s Free FICO Score

B of A will give you access to your FICO score as long as you have a credit card with them. The score you get is the FICO Score 8, which is the most popular score among lenders.

Your Bank of America score is updated monthly.

Discover’s Free FICO Score

In 2016 and 2017, Discover did some pretty heavy advertising for their Credit Scorecard, which is a free FICO-score service they give to anyone who wants it. You don’t’ have to be a Discover customer to take advantage of it.

One thing we like about Discover’s free FICO score is that they give you grades (Excellent, Good, etc.) for each of the five factors of your score. This grading system helps you grasp which factors are bringing your credit scores down and which ones are raising it.

As far as we know, your Credit Scorecard is updated monthly.

Barclays Free FICO Score

You can get a free FICO score from Barclays if you have one of their credit cards. The Barclays FICO score comes with an explanation of the negative factors affecting your score.

However, unlike those sites, which update monthly, the Barclaycard score updates every two months.

Experian’s Almost-Free FICO Score

If you’re willing to pay $1, you can get a free FICO score from Experian. Be careful, though; the $1 you pay is actually for a seven-day trial period of Experian’s CreditWorks program starting on the day you sign up.

Once the seven-day trial is up, you’ll be charged $21.95 a month.

The $1 trial gives you access to your Experian FICO Score 8 and tracks your score on a daily basis.

Some Final Thoughts About FICO Scores

The FICO score was first invented back in the 1950s by an engineer and a mathematician. Their names were Fair and Isaac, which is what led to Fair, Isaac, & Co. being named FICO.

The founders’ goal was to come up with a credit scoring system that used data to predict the likelihood that a consumer would be late on payments.

Mortgage and auto loan lenders loved this idea because it meant they had a data-driven way of judging how risky a particular consumer was.

The first FICO model was used by banks in the 1970’s. From there, FICO scores have pretty much become the industry standard for credit card companies, mortgage lenders and companies who offer auto loans.

Your FICO score is a combination of more than 100 individual factors, the main influencers of your score are payment history, credit utilization, credit length, new credit and credit mix.

Payment history and credit utilization account for 65% of your score, which means paying on time and keeping your balances low is crucial to having a great credit score.

While a FICO score is considered a credit score, it’s also seen as the most important credit score you have. In 9 out of 10 cases, your lender will look at a version of your FICO score to determine what percentage rate you’ll get on your loan.

A score above 800 is excellent, while scores ranging from 740-799 are seen as very good.

Once your FICO score drops below 740, you’ll see a significant jump in APR’s on loans and credit cards. If your FICO dips into the 600s, those APR’s shoot up even higher.

In fact, getting a five-year car loan for a $25,000 car could cost you around $2,000 more in interest payments if you have a score of 650 instead of 665.

If you want to know what your FICO score is – remember, there are multiple versions – then we suggest signing up for Discover’s Credit Scorecard service. It’s free and gives you some feedback on how you can raise your credit scores.

J.R. Duren

J.R. Duren is a personal finance reporter who examines credit cards, credit scores, and various bank products. J.R. is a three-time winner at the Florida Press Club’s Excellence in Journalism contest. He is a member of the Society of Professional Journalists and his insight has been featured on Investopedia, GOBankingRates, H&R Block and Huffington Post.

What is a FICO Score? Everything You Need to Know