What Is a FICO Score? — Quick Overview
A FICO score is the most widely used consumer credit score in the United States. Created by the Fair Isaac Corporation (FICO), it ranges from 300 to 850 and helps lenders assess a borrower’s credit risk—how likely the borrower is to repay debts on time. Higher scores generally lead to easier approval and better interest rates.
Source: Investopedia (https://www.investopedia.com/terms/f/ficoscore.asp)
Key Takeaways
– FICO scores range from 300–850 and are used by many lenders to decide credit approvals and pricing.
– Scores are calculated from information in your credit reports across five categories: payment history, amounts owed (credit utilization), length of credit history, credit mix, and new credit.
– Typical weighting (general guidance): Payment history 35%, Amounts owed 30%, Length of history 15%, Credit mix 10%, New credit 10%.
– Different versions of FICO exist (Score 8 is widely used; FICO 9 and the FICO 10 Suite are newer). Lenders choose which version to use.
– FICO differs from VantageScore (another scoring model); each model can give slightly different scores.
How FICO Scores Work
– Data source: FICO uses the consumer credit reports from the three major bureaus (Equifax, Experian, TransUnion).
– Input: On‑time payments, balances, account types, account ages, recent inquiries, collections, bankruptcies, etc.
– Output: A single numeric score (300–850) intended to predict likelihood of delinquency.
– Use by lenders: Lenders combine the FICO score with other borrower information (income, employment, loan purpose) when making decisions.
FICO Score Ranges (Commonly Used Bands)
– 800–850: Exceptional
– 740–799: Very good
– 670–739: Good
– 580–669: Fair
– 300–579: Poor
(These bands are widely used as guides; individual lenders set their own cutoffs.)
How FICO Scores Are Calculated — The Five Factors and Practical Steps
1) Payment History (≈35%)
What it covers: Whether you pay bills on time, late payments, collections, charge‑offs, bankruptcies.
Practical steps:
– Always pay at least the minimum on time. Set calendar reminders or enroll in autopay.
– If you miss a payment, bring it current as soon as possible—delinquencies hurt more the longer they remain unpaid.
– If you have a legitimate dispute (billing error), contact the creditor and file disputes with the credit bureaus.
– For long‑term problems, negotiate pay‑for‑delete or settlement only after confirming how the creditor will report it (note: pay‑for‑delete is not guaranteed).
2) Amounts Owed / Credit Utilization (≈30%)
What it covers: The ratio of current balances to credit limits (per card and overall).
Practical steps:
– Aim for utilization below 30% overall; below 10% is better for top scores.
– Pay down balances promptly and, where feasible, make multiple payments during the billing cycle to keep reported balances low.
– Ask for higher credit limits (without opening a new card) to lower utilization—only if you won’t increase spending.
– Be careful closing unused cards: closing reduces total available credit and can raise utilization.
3) Length of Credit History (≈15%)
What it covers: Age of oldest account, age of newest account, and average account age.
Practical steps:
– Keep older accounts open (even if rarely used) to preserve account age.
– Avoid opening many new accounts in a short window solely to increase available credit—new accounts temporarily shorten average age.
– For young consumers, consider becoming an authorized user on a relative’s long‑standing, well‑managed account.
4) Credit Mix (≈10%)
What it covers: A variety of account types—revolving (credit cards), installment (car loans, student loans), mortgage.
Practical steps:
– Don’t open accounts solely to diversify; only add a different type of loan if you need it and can manage it responsibly.
– A healthy mix can help, but payment history and utilization matter more.
5) New Credit (≈10%)
What it covers: Recent account openings and hard inquiries from lenders.
Practical steps:
– Limit hard pulls—shop for rate quotes in a short window for mortgages or auto loans (FICO typically counts multiple auto/ mortgage inquiries in a short period as one search).
– Avoid quickly opening several cards or loans, which signals higher risk.
– If planning a major loan (home, auto), avoid new credit applications for several months before applying.
FICO vs. VantageScore
– Both score from 300–850 and use similar factors, but they weigh things differently and have different rules for when a score can be generated.
– VantageScore may generate a score with fewer tradelines; FICO historically requires tradelines of a certain age and recent activity.
– Your VantageScore and FICO can differ—lenders choose which model to use.
FICO Versions
– Multiple versions exist because FICO updates its algorithms; Score 8 has been the most commonly used, but FICO 9 and FICO 10/10T exist.
– Certain industries may favor specific versions (e.g., auto lenders sometimes use older versions).
– Newer versions may change how collections, medical debts, rental history, and trended data affect scores.
Which FICO Score Do Mortgage Lenders Use?
– Mortgage underwriters often pull FICO scores from each bureau and may use the middle (median) of the three scores for qualifying (commonly referred to as the “tri‑merge” approach), but practices can vary by lender and program (e.g., FHA, VA, private lenders).
– Lenders also have minimum score requirements that differ by loan type and risk level.
How Often Does a FICO Score Update?
– Your FICO score updates when the credit bureaus receive new information from creditors—typically monthly but timing depends on when creditors report.
– Actions like on‑time payment and balance changes will be reflected after the creditor reports them to the bureaus.
Practical 30‑, 60‑, and 90‑Day Action Plans to Improve Your FICO Score
30 days — Immediate fixes
– Pull each free annual credit report (AnnualCreditReport.com) and review for errors or fraudulent accounts.
– Enroll in autopay for at least minimum payments.
– Pay down any credit card balances that are near or over 30% utilization.
– Dispute any incorrect negative items with the bureaus.
60 days — Momentum building
– Continue paying down balances and keep utilization low by making multiple payments per month.
– Request credit limit increases on cards that have been healthy for >6–12 months (this helps utilization if spending stays steady).
– If you have collections, contact the collector to understand options; get any agreement in writing before paying.
90+ days — Longer‑term strategies
– Maintain on‑time payments consistently—this has the biggest long‑term effect.
– Avoid opening multiple new revolving accounts; plan new credit only when necessary.
– Consider credit‑builder loans or secured cards if you have a thin file or poor history—use them responsibly to build positive history.
– Keep older accounts open unless there’s a compelling reason to close.
Special Situations
– Medical collections: Newer scoring models and FICO versions treat medical collections more leniently; verify medical debts to avoid reporting errors.
– Identity theft: Place a fraud alert or credit freeze and follow dispute procedures to remove fraudulent items.
The Bottom Line
FICO scores are a critical part of credit decisions but are not the sole factor. You can actively influence your score by maintaining on‑time payments, keeping credit utilization low, preserving older accounts, limiting new credit inquiries, and checking your credit reports for accuracy. Small, consistent habits (autopay, timely payments, low balances) produce the largest improvements over time.
References
– Investopedia: “FICO Score” (https://www.investopedia.com/terms/f/ficoscore.asp)
If you’d like, I can:
– Review and summarize your credit reports step‑by‑step (if you paste non‑sensitive excerpts).
– Create a personalized action plan based on your current score, debts, and goals (home purchase, refinance, car loan).