What’s a FICO Score? Your Credit Scoring Guide

Sure, we all know we have a credit score, but did you know your “FICO Score” is used in 90% of American mortgage decisions?  In short, the Fair Isaac Corporation (FICO) is a data analytics company that has provided credit scoring tools since 1956. And your FICO ScoreA scoring model that measures consumer credit risk.FICO ScoreA scoring model that measures consumer credit risk. is the numerical representation of your creditworthiness. Lenders and creditors typically review your score when you apply for a loan or line of credit.

Your FICO Score is a major contributor to your financial health and lifestyle. It can affect your ability to buy a home, purchase a car, or even get a credit card. Bonkers, we know. But you know what isn’t bonkers? Understanding the meaning behind your FICO Score and taking action to improve it. In this article, we’ll go over the ins and outs of the FICO Score so you’ll be prepared the next time you apply for a loan. So, without further ado...  

What is a FICO Score?

A FICO Score is a three-digit number that provides lenders with a quantitative estimate of the likelihood a borrower is to repay their loan. That’s a fancy way of saying it measures your “creditworthiness.”

A higher FICO Score generally tells lenders the individual has a lower statistical likelihood of failing to repay a loan. Conversely, a lower score might indicate that an individual is potentially a risk for delinquency (falling behind on their monthly payments).  

What Does a FICO Score Really Mean? 

Beyond assessing your creditworthiness, your FICO Score can also affect the interest rate you receive. A higher FICO score can mean lower interest rates and better loan terms, while a lower FICO Score may make it more challenging to get approved for a loan or result in higher interest rates and less favorable terms. If you’d like to learn more about how your FICO Score can change your interest rate - for better or for worse - reach out to us today. And remember, we can do a “soft pullA look at your credit report that is not tied to any lending decisions.soft pullA look at your credit report that is not tied to any lending decisions.” of your credit, so it’s not reflected on your report. 

What Factors Make Up a FICO Score? 

FICO cites five factors that contribute to your overall score. They’re each assigned a percentage, so some factors weigh more heavily in the eyes of FICO than others. 

Payment History (35%): Indicates if you’ve made payments on time and has the largest impact on your score.

Outstanding Balances (30%): How much you owe versus how much available credit you have. Set a goal to keep your credit balances below 30% of your credit limit.

Length of Credit History (15%): The longer an account is open, the better. Don’t close unused credit lines because that can negatively affect your score. 

Type of Credit History (10%): A mix of student loans, credit cards, auto loans, and mortgages paints a more positive picture than just credit cards alone.

Number of Credit Inquiries (10%): Frequently applying for credit in a short period of time represents a risk and can lower your score.  

Is a FICO Score the Same as a Credit Score? 

The short answer: not exactly. FICO is one of several credit scoring models out there. Another popular model you might run into during your research is VantageScore, which uses its own unique formula to calculate credit scores. Although VantageScore may weigh certain factors differently than FICO when calculating your score, it still boils down to measuring someone’s creditworthiness.  

Expert Tip

Keep in mind that lenders use FICO in credit reviews more often than VantageScore.

Why Is My FICO Score Different From My Credit Score? 

If you've checked your credit score with different credit monitoring services or credit bureaus, you may notice that your FICO Score is different from your VantageScore® score, or even from the three major credit bureaus – Experian, Equifax, and TransUnion. As mentioned, this may be due to different models using different formulas to calculate your score.

For example, let’s say Credit Score A’s formula values new credit lines slightly more than Credit Score B's. That means opening a new credit card will affect the two scores differently. After opening the new card, you might notice that Credit Score A is now higher than Credit Score B. That doesn't mean Credit Score A’s model is “better” than Credit Score B’s; it just means that your information is being weighed differently.  

What Makes a “Good” FICO Score?  

Ideally, a score in the 700s is best, but you still have options even if your number doesn’t hit this mark. And you can even make changes to your financial habits to raise your score.  

Expert Tip

Remember, there are multiple credit scoring systems. Mortgage lenders use FICO Scores, so keep an eye on those first.

How Many FICO Scores Are There? 

To this point, we’ve referred to one singular FICO Score. However, FICO reports that 16 unique versions of their scoring system are currently used by creditors and other authorized users of personal credit data (we’re talking landlords and utility companies). The two most common scores are FICO Scores 8 and 9. While FICO Score 8 is most widely used in credit assessment and background checks, FICO Score 9 is frequently, but not always, used by lenders.

Things can get pretty tricky when you try to predict which of the 16 scores a lender will see when they process your credit application. But here’s the good news: while you can’t control the exact score a lender will see, you can perform specific actions to ensure ALL your scores are in tip-top shape before applying for a home loan or credit card. 

How Can I Improve My FICO Score? 

If your credit score is below where you’d like it to be, there are a few things you can start doing today to improve it. Atlantic Bay is happy to take a look and help you plan a path forward.

You can distribute debt from revolving credit or pay down the balance. Avoid using credit cards to their limit; going over the threshold affects your credit utilization ratio (how much available revolving credit you use). And instead of maxing out one card, distribute the balances between multiple cards to lower your balances across the board.  

But don’t open multiple credit accounts at the same time. Yes, owning multiple credit cards can help you keep your balances low, but the process only works in moderation. Opening a new credit line to distribute debt or strengthen your credit mix may damage your score in the short term. Try building your credit mix over time, proving that you can responsibly manage one or two accounts before tackling any more.  

Always pay your bills on time. For past-due accounts, catch up on payments or arrange a repayment plan with your creditor. And to avoid delinquent debt from mounting, you could also enroll in your creditor’s automatic payment plan. Doing so can greatly reduce the risk of missing due dates, incurring late fees and penalties, or – here's the big one – lowering your FICO Score.  

How Do I Find My FICO Score? 

Because credit scores make such a significant impact on our financial lives, you can find your FICO Score online and free of charge (in most cases). The first place you should look for your score is with your credit card issuer.  

Some creditors send a free FICO Score monthly, but that’s not always the case. To access your score, you must be the primary account holder, also known as the individual legally responsible for the card’s debt. If you’re unsure who the primary account holder is, check for the name listed first on the card’s last statement.  

With the primary account holder sorted, you can now view your score at home from your online account or when you’re on the go through your creditor’s official app! 

Don’t Just “FICO” With the Flow  

Now that you’ve got a solid grasp of what a FICO Score is and how it works, the last step to becoming a seasoned credit-minded individual is keeping up with your score. Carefully review your credit report often (you get a free one each year from all three credit bureaus), and if you find errors, follow these steps to correct them: 

1. Prepare a letter to the credit reporting agency (aka CRA or credit bureau) that provided the report in question and request to remove the incorrect information.

2. Prepare a letter to the creditor reporting the problem, especially if you believe you’ve fallen victim to fraud or identity theft. Include any relevant documentation.

3. Send your correspondence via certified mail or file your dispute online with the CRA.

4. Keep a copy of the incorrect report for your own records.  

If you have more questions about your FICO; Score, contact us today!