What is a FICO® score, and why does it matter?

Credit scores can affect a great deal of what you’re able to achieve financially. Good credit scores can open the door to opportunities like homeownership, new credit cards and favorable loan terms. Low credit scores, on the other hand, may not offer as many opportunities.

If you’re exploring credit, it’s likely you’ll eventually come across FICO credit scores.

Key takeaways

  • FICO is one of the major credit-scoring companies.
  • FICO produces multiple formulas, called credit models, that lenders can use to calculate scores and assess borrowers’ creditworthiness. 
  • FICO scores are calculated based on payment history, amounts owed, length of credit history, credit mix and new credit applications.
  • The most popular scoring models, such as FICO Score 8, produce scores ranging from 300 to 850.

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What is a FICO score?

A FICO score is a 3-digit number that indicates a prospective borrower’s level of creditworthiness to lenders. FICO is the name of the company that produces these specific credit scores. The company’s original name was Fair Isaac Corporation, but it was shortened to FICO in 2009.

FICO’s most popular scores range from 300 to 850. And the national average FICO score is 716. The higher the score, the more favorable a borrower might look to a prospective lender.

FICO also has a few different scoring models. Many lenders still use the FICO Score 8 model, but FICO Score 9 and the FICO Score 10 suite have also been released in recent years. Each model is a bit different, so you may see differences in your scores depending on which scoring model is used.

Is a FICO score the same as a credit score?

Yes, a FICO score is a type of credit score that’s commonly used by lenders to gauge how risky it might be to lend to someone. 

But it’s important to note that FICO isn’t the only credit-scoring company. And different credit-scoring companies use various models when calculating scores for consumers. VantageScore is another popular credit-scoring company, for example. It was founded by the three major credit bureaus—Equifax®, Experian® and TransUnion®.

Is a FICO score your true credit score?

FICO scores are used by many financial institutions to inform lending decisions, but there’s no one true credit score. There are a number of sources borrowers can use to access their credit scores. But the scores can vary depending on the credit-scoring company, which model the company uses and when the score is calculated.

Why is your FICO score important?

If you work with a lender that reviews FICO scores, your FICO score can be an important deciding factor in determining your creditworthiness and, ultimately, whether your credit application is approved. 

Whether you’re planning to buy a house, rent an apartment, lease a car or apply for a credit card, your lender will likely take your credit scores into consideration. Your credit scores may also determine the interest rates and terms you’ll receive on a loan or line of credit.

If your scores are deemed too low, lenders may not be willing to take the risk to approve you for credit. If you are approved, you might pay higher interest rates compared with those with higher credit scores. And that can add up over time.

How are FICO scores calculated?

There are 5 key pieces of information FICO says its models use to calculate scores: payment history, credit utilization ratio, length of credit history, credit mix and new lines of credit. 

Payment history

Your payment history on credit accounts makes up 35% of your FICO scores. The more reliable you are with paying off the money you owe on a loan or line of credit on time, the higher your scores may be.

Credit utilization ratio

Your credit utilization ratio—the amount of available credit you use—is also one of the most significant factors in your FICO scores. It makes up 30% of the scores. The lower your credit utilization ratio, the more positive your scores could be. 

Length of credit history

The length of your credit history—basically, the age of your credit accounts—is another factor in calculating your FICO scores. Generally, the longer a person’s positive credit history, the better. It represents around 15% of your score.

Credit mix

In addition to the length of your credit history, FICO takes your credit mix into consideration when calculating your scores. The various types of credit accounts you use make up 10% of your FICO scores. A healthy mix might include revolving credit, such as credit cards, and installment loans, such as a mortgage.

New lines of credit

Opening a new line of credit can sometimes have a temporary negative effect on your FICO scores. That’s because it involves a hard inquiry, which can stay on your credit reports for up to two years. And while new credit makes up 10% of your scores, FICO says it only considers inquiries from the past 12 months.

What are the FICO score ranges?

FICO scores typically range from 300 to 850. But there are specialty scores that are different. Each credit score range has its own implications. Here’s how FICO says its ratings and ranges might be viewed: 

  • Scores between 300 and 579 are considered poor. Poor means your score is well below average, and most lenders will likely see you as a high-risk borrower.
  • Scores between 580 and 669 are considered fair. Fair means your score is below average, but you may still be able to get approved for some loans and lines of credit.
  • Scores between 670 and 739 are considered good. Good means your score falls within the average—or slightly above average—range. Your chances of getting approved for a loan or line of credit are good, but you may not receive optimal interest rates or loan terms.
  • Scores between 740 and 799 are considered very good. Very good scores are above average, and you’re more likely to qualify for better interest rates and loan terms with lenders.
  • Scores above 800 are considered exceptional. Exceptional scores are nearly perfect, and you’re more likely to receive some of the most favorable interest rates on loans and lines of credit.

What is a good FICO score?

FICO says a good credit score is one that falls between 670 and 739. Lenders may consider scores within this range to be at an acceptable level of risk. But remember, scores are just one factor in lending decisions. And what FICO says may not affect lending decisions at all. 

What is a bad FICO score?

Based on the FICO scoring model, a bad credit score typically falls between the poor and fair ranges, or 300-669. Lenders might see a FICO score in this range as a high level of risk, limiting your chances of approval.

To increase your chances and potentially qualify for lower interest rates and better terms for your loan or line of credit, consider working on improving your scores.

How to check your FICO scores

If you want to find out what your current FICO credit scores are, there are a few ways to do so. Accessing scores through your bank or credit card issuer, credit-monitoring services and personal finance apps are just a few options. 

But remember, a FICO score is just one potential credit score a lender might use to review creditworthiness. If you want a free way to check your VantageScore 3.0 credit score you could use CreditWise from Capital One. It’s free, whether or not you are a Capital One cardholder, and it won’t hurt your credit scores. You can also use it to review your TransUnion credit report.

FICO scores in a nutshell

Credit scores are used by lenders to assess the risk level and creditworthiness of borrowers, and many lenders use FICO scores. But it’s not the only type of credit score out there. 

Monitoring your credit can help you set realistic expectations and track your progress as you build credit. And it can be helpful to know what your scores are before making any big financial decisions. You can use the CreditWise Simulator if you want to see how certain decisions—like applying for a new credit card or paying off your balance—might affect your scores.

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