Ever wonder what FICO actually means, and what it has to do with your credit score? Behind every mystery acronym is (usually) an interesting explanation. In this case, it’s important to know where FICO came from and how it impacts your credit. Everything you ever needed to know about a FICO score is down below.
What does FICO stand for?
Fun Fact- FICO stands for “Fair Isaac Corporation,” a company that created the score of the same name. Dr. Earl F. Fitch started the first credit bureau in 1916 and the first FICO score was introduced in 1958!
How does a FICO score impact your credit rating?
The FICO Score is used by lenders to assess how risky it is to lend money to someone based on their credit history. Lenders have many different types of FICO Score models available, so not all borrowers are scored equally! A lender will typically use a “base” model, which will be applied to all FICO Score models. The base model is based on data from the three credit bureaus: Equifax, Experian, and TransUnion.
What are the different types of FICO Scores?
There are different FICO Scores used by lenders to assess risk, but there are also FICO Score versions used solely for personal use. FICO sells multiple FICO scores that can be purchased directly from their website. These scores look at your credit history and give you an idea of how lenders see the same information. Depending on what type of FICO Score you purchase, it can range from 300-850. FICO also offers a “FAKO” score, which is actually a credit score that’s been generated by one of the three credit bureaus – not FICO themselves.
List of Different FICO Scores Lenders May Use
- FICO Score
- FAKO Score
- Base FICO Score
- FICO Auto Score
- FICO Bankcard Score
- FICO Mortgage Score
- FICO Personal Loan score
Usually, all of these scores are close to each other but can vary slightly depending on a lot of different factors. That’s why some people might be approved for one type of loan, but may be denied or receive a higher interest rate for a different type of loan despite having the same Base FICO score.
What are FICO scores used for?
Other than being a helpful number to know when applying for loans or credit cards, FICO Scores can also be useful in other ways! For instance, FICO Scores are often used to predict how likely people will be able to pay their bills on time. FICO scores can also help landlords determine the financial risks of renting out an apartment or home!
Scores are also commonly used by employers to determine if someone is a good candidate for employment. FICO scores can even affect the rate of insurance premiums that an individual might pay!
How are FICO scores calculated?
Your FICO Score changes constantly based on your credit history. Each time you apply for new credit or make a late payment, FICO Scores are updated. FICO Scores have three categories of information that they take into account when evaluating your credit history:
– Payment History – 35% of the total FICO Score is determined by this category! Did you make all of your payments on time? Late or missed payments can really impact a FICO score negatively. (Read more about how to remove late payments from your report)
– Amounts Owed – 30% of FICO Scores are determined by this category. It’s important to know how much you owe in credit cards, student loans, mortgages, etc., and make sure that it doesn’t get too high or your FICO score will drop!
– Length of Credit History – The remaining 30% FICO Scores are determined by this category. FICO Scores like to see that you have had credit for a while, so making newer accounts can get your FICO score lower!
How to Check a FICO Score:
You can check your FICO score for free at myFICO.com, which is an independent FICO Score calculation site, not affiliated with any particular lender! Remember, it’s also important to check your FICO score periodically because it can change over time.
Is a FICO Score the same thing as a Credit Report?
Nope. FICO scores are not the same as credit reports, which you might already be familiar with if you’ve applied for a loan before! They only consider information from certain bureaus (Equifax, Experian, and TransUnion), whereas every bureau is included in a credit report. FICO Scores are updated often, whereas credit reports can keep track of your history for up to seven years!
What else do I need to know about FICO scores?
Keep in mind that FICO is just one of many factors used when deciding whether or not someone gets approved for a loan or credit card. FICO Scores are just one of the many tools lenders have to determine whether someone will be likely to repay what they owe on time!
If all this sounds intimidating and you want help enacting these principles, let us know. Our credit repair team is ready and waiting to help you max your FICO score up and to the next level.