The Difference Between FICO® Vs. Credit Score
What is a FICO® Goal?
FICO® Score was created by the Fair Isaac Corporation (FICO®) and is a three-digit number based on your credit report. Lenders use your FICO® Score to determine loan options based on credit history.
Indeed, from the perspective of a real estate buyer, financial providers who offer mortgages to borrowers will look to your FICO.® Score as well as other details on your credit reports to weigh credit risk and decide if they are comfortable extending credit to you. Better is your FICO® Score, the better your chances of getting a home loan – and the better the terms on which these loans will typically be granted.
Fair Isaac Corp. applies a proprietary method to calculate your credit score. But usually your FICO® The score is influenced by the following five factors (each weighted respectively as shown):
- Payment history (35%): This is to assess how effectively you have maintained a history of on-time payments. The more regularly you make one-time payments, the more your score will tend to increase. Conversely, the more you accumulate late payments, the more it will fall. Outstanding balances or accounts that have been recovered can also negatively impact your score, as can bankruptcies or foreclosures.
- Amounts due (30%): This category looks at the total amount you owe for revolving debt (like credit cards) and installment debt (like personal loans, auto loans, and home loans). Keeping balances lower than your overall credit limit can help you maximize your chances of getting a good credit score.
- Length of credit history (15%): The longer your history of maintaining credit history, the better it is for your credit score. That’s because the more data lenders have to look at (and the better that data reflects your financial habits), the higher your FICO.® The score will trend.
- Composition of credit (10%): Lenders also like to see that you’ve been able to manage a healthy mix of different revolving and installment credit facilities, which positively reflects your perceived ability to balance a budget.
- New credit (10%): It turns out that every time you apply for a new loan or a new credit card, your credit score temporarily drops. However, if you are diligent about making payments on time, maintaining manageable credit balances, and making ends meet, your score should recover quickly.
Is FICO® Score the same as credit score?
On the one hand, the terms “credit score” and “FICO® Score” are often used interchangeably. However, be advised: a FICO® Score is just one type of credit score – noting that different providers and scoring methods (e.g. VantageScore®as shown below) exist.
Most FICOs® scores range between 300 and 850, with scores above 670 being considered a good score. (Although different rating ranges, such as 250 to 900, can be found in other industries such as auto loans and credit cards.)
Financial service providers may turn to a variety of credit bureau choices and reporting methods when looking to calculate your credit score. That said, typically when mortgage lenders are looking to assess your creditworthiness, the credit score they’re most likely to consider is the one provided by FICO.®.
Have a higher FICO® The score can help you significantly increase your chances of getting a loan and getting it from a wider group of potential suppliers.