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FICO Basics
Mark Cappel
UpdatedDec 1, 2010
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    9 min read
Key Takeaways:
  • Examine how your credit score is calculated.
  • Learn how to access your credit report.
  • Understand what "FICO" means.

What is a FICO score and what does it mean to me?

When it comes to credit, your FICO score is the most commonly used measure. Although there are other credit scoring systems, the FICO score is the most dominant and the one you should pay attention to.

FICO is probably a very mysterious and confusing word. You probably know it has something to do with credit, but you may not know exactly what FICO means and what your FICO score is.

Your FICO score is one part of measuring your creditworthiness. Your score determines the interest rates you will get on loans or if you will even qualify for a loan at all. It is a predictive measure used by lenders to rate the probability you will default on a loan or line of credit. The higher your FICO score, the lower your risk of default is determined to be. That means that a high score leads to a greater the likelihood that you will qualify for the best rates available on any financial product you shop for, such as mortgage loan, car loan, or credit card.

FICO: Fair Isaac Company

FICO is short for Fair Isaac Company.

Founded in 1956, Fair Isaac & Co. developed the FICO credit score. It uses a scale from 300 to 850, and bases its calculation on data it finds in the three major consumer credit reporting agencies: TransUnion, Experian, and Equifax. This credit rating is used to predict your credit risk. You can buy your FICO score from a consumer credit reporting agency. Because TransUnion, Experian, and Equifax may have slightly different information about you in their files, your score may vary.

Whenever you apply for financing on a car, home, or boat, or apply for a credit card or line of credit, the creditors pay Fair Isaac for your current FICO score. Your score is not released to you. You can learn your FICO score on your own, but the creditors with whom you apply for financing do not have to provide you with the financial information they learn about you.

If you are turned down for financing, creditors and lenders are required to provide you with a reason why you were turned down and, if your score was a factor, your credit score. They are also required to disclose if they used TransUnion, Experian, or Equifax.

How to Calculate a FICO Score

Due to the complexity of the statistical analysis used in credit scoring, and the fact that the scoring formulas are not publicly available, you cannot precisely figure your own credit score. However, Fair Isaac has made public the general criteria it uses in calculating credit scores. So, based on information in your credit report, you should be able to tell which items in your report are helping or hurting your credit score.

There are five key factors that go into calculating your FICO score, with certain items carrying more weight than others. These factors are:

1. Payment History: 35%

Consistently paying your bills on time has a positive influence on your score. Late or missed payments hurt you in this area. If you have delinquent payments, the older the delinquency the less the negative impact it has. Collection accounts and bankruptcy filings are also considered when analyzing your payment history.

2. Credit Utilization: 30%

This section looks at how much debt you have compared to the total available credit on your accounts. If all of your accounts are maxed out, you will be considered a poor credit risk, because it appears that you are struggling to pay off existing debt.

If your account balances are relatively low compared to your available credit, this part of the risk analysis should help your overall credit score. The score calculation also looks at these two factors independently.

3. Length of Positive Credit History: 15%

The longer you maintain accounts in good standing, the better your score will be. This shows that you are able to make a long-term commitment to a creditor and are consistently responsible about making your payments. The lesson here is to keep your oldest credit card open.

4. Mix of Credit Types: 10%

Having several different types of credit, such a credit cards, consumer loans, and secured debt, will have a positive influence on your credit score. Having too much of one type of credit can have a negative impact.

5. New Credit Applications: 10%

The number of new credit applications you have recently completed accounts for about 10% of your score. Applying for too much new credit in a short time period makes indicates that you could be credit risk, as you may be desperately trying to keep your head above water. The models make an exception for people who are shopping around for a loan, so if you are simply applying to see who can give you the best rate on a new loan, you need not worry too much about damaging your credit score.

Although you cannot calculate your own credit score accurately, you can review your credit report for on the five factors named above to get an idea of whether the accounts listed on your credit report are hurting or helping your credit score. You can then take action to improve any potential problems, such as paying down your balances or paying off collection items.

Generally speaking, if you are carrying more than $5,000 in credit card debt or are struggling with credit card or revolving debts, you should solve this problem first. Apply for help with one of Bill’s approved debt help partners.

How to Identify a Good FICO Score

The higher your FICO score, the better. As mentioned, FICO scores range from 350 to 850. Each creditor or lender weights your credit score differently when deciding your creditworthiness. In the past, any score above 690 was considered a great score. Today, you may need a score of 720+ to qualify for the best rates. A credit score below a 620 is frequently referred to as "sub-prime." Any score below 500 indicates a person is a terrible risk.

How to Obtain Your Credit Reports

You have more than one credit report. As mentioned, the three largest consumer credit reporting agencies are Equifax, Experian and TransUnion, but there are others. Each are independent of the other two, and each may publish wildly different information about your credit history. Therefore, you must check your report at each of the big-three because you do not know which credit report a potential creditor may see.

The Fair Credit Reporting Act requires all consumer credit reporting agencies to provide you with a no-cost copy of your credit report once every 12 months, but only if you request it. No-cost copies of your reports are not sent to consumers every 12 months automatically. Equifax, Experian and TransUnion offer services starting at $15 per month where you can see real-time changes to your credit report.

As of this writing, only the three big-three consumer credit reporting agencies offer no-cost credit reports to consumers:


To receive a free report from Equifax, Experian and TransUnion, go to You can stagger your requests and ask for a report from a different consumer credit reporting agency every four months, which allows you to see changes to your credit reports over time. The FCRA allows you to request a free copy of your credit report if you are denied credit. However, you can request a copy from the specific credit reporting agency that supplied the report to the lender who denied your application.

How to Obtain Your Credit Score

A credit score is a predictive statistic designed to estimate the odds of a consumer repaying a loan. As mentioned above, Fair Isaac & Co.’s FICO is the oldest and most widely used credit score. Virtually all mortgage lenders and most automobile finance companies use custom versions of FICO. Fair Isaac also sells a consumers a copy of their current FICO score, too. Note the FICO score consumers buy may be different from the custom score a lender buys. Also, FICO scores are calculated daily, so a 720 today may drop to 715 next week or bounce up to 725 for no apparent reason. FICO scores range from 300 to 850.

Quick Tip

Struggling with debt? Use the Debt Coach tool to get no-cost, no-nonsense advice on your debt relief options, and the costs of each.

VantageScore competes with FICO, and uses a scale ranging from 501 to 990. Few major creditors use VantageScore, but Equifax, Experian, and TransUnion sell this score to consumers. There is nothing wrong about VantageScore, except that it may confuse or mislead consumers into believing their scores are higher or lower than their FICO scores.

How to improve a FICO score

Here are four steps to improve a credit rating:

  1. Pay off all debts and keep revolving lines below 30% utilization. Do not "max out" your credit cards.
  2. Diversify your credit portfolio. Have a mixture of different types of accounts. For example, you have only a Visa, MasterCard, or Discover card, get a department store credit card or card from a gasoline retailer. Maintain at least three active trade lines in good standing at all times.
  3. Make your payments every month on time! Leave a small balance every once in a while to show that you are able to handle debt on more than one account.
  4. Keep your oldest credit account active. Remember point number three "Length of positive credit history" discussed above.

Pull your credit report and contest any inaccurate information so that it can be corrected by the credit bureaus. Go to the debt self-help center for sample dispute letters. The credit bureaus must follow the rules set forth by Congress in the Fair Credit Reporting Act (FCRA).

If you would like to learn more about credit reports, credit scoring, and what it means to you, I encourage you to explore the wealth of material offered by the credit information page.


Your FICO score says a lot about you. Creditors use it as one piece in puzzle to get a picture of the risk they bear in lending you money. Mortgage loan officers use it as a yardstick to decide if you are worth their time in writing a mortgage application, and auto finance companies use it to set your interest rate on car loans. Generally, the higher your FICO score, the lower your interest rate will be. Stay on top of your monthly credit card, mortgage, and even cable bills, and pay everything on time. If not, your FICO score could plummet.


DDavid, May, 2013
This is practically an encyclopedia on FICO and credit scores. You mentioned someones credit score changes "for no apparent reason." Why does a person's credit score vary from week to week?
BBill, May, 2013
Four reasons why someone's credit score may change: • Credit scores are relative. Let's say half of US consumers decided to default on their credit cards, car payments, and mortgages. Their scores would fall, while the other half would rise even though their behavior didn't change. • The math and software behind the FICO score may change, resulting in some consumers seeing slightly higher scores and others lower. FICO is proprietary, and no one outside of Fair Isaac knows exactly how our scores are calculated, or when FICO tweaked its scoring algorithms. • A consumer's old derogatory account may reach a certain age where FICO weights it much less than before. Time heals all wounds in FICO. • FICO tends to lump consumers with similar scores into buckets. A score may jump or fall as a consumer moves between buckets.

Of course, a consumer's score changes based on their payment history, credit utilization, and the other factors we mentioned in the article above.

AAndrew, Mar, 2012
I think it should be noted that although your three major credit reports are available yearly for free, the Credit Score is NOT free. Each agency has the same product, perhaps at a different annual fee, which is a credit monitoring service that basically alerts you to potential changes in your credit report and to your credit score. The good news is that most of these plans offer a trial period for free. Each credit bureau along with many other well-publicized agencies have different trial period lengths before they automatically turn over to the full plan. So my suggestion before taking advantage of simply getting your credit score without the need for other services is this: before you sign up for this offer, either find the toll-free number to unsubscribe or the toll-free customer service number. Call the number and verify that this is the number where you can call and cancel your membership. There have been instances with other companies where the fine print was extremely fine, and not only did the member have to call and cancel from that number, but also had to call or make some contact with an additional department or agency. The FICO should be included on all credit reports, but the founders of FICO and their magic potion for credit scoring and their monopoly on this product, make for very good to excellent credit scores for these people, and I might add, very handsome salaries, benefits, bonuses, etc.