What is a FICO Score

fico scoresYour FICO score is a credit score. The term FICO refers to a credit scoring model developed by the Fair Isaac Corporation; it’s just one method of calculating a credit score.

Different lenders may use different scoring models, depending on what’s most important to them. “But credit scores are complicated enough without having multiple scores,” you’re thinking. Rest assured, FICO scores are by far the most used model, and the other scoring models aren’t radically different.

FICO Score Breakdown

Keep in mind, the exact calculation of a FICO score is top secret. Thankfully, the FICO company has gifted the American people with a generous glimpse into what goes into their calculations. Still, the importance of each category varies depending on the person. For example, an 18 year old who has just received her first credit card could theoretically have less emphasis placed on length of credit history and types of credit. Your FICO score is between 300 and 850.

Payment History

Your payment history accounts for about 35% of your score. To put it simply, late payments are bad, and on-time payments are great. This rule applies to the vast majority of bills; any company that reports to a credit monitoring agency can negatively or positively affect a FICO score.

Credit Utilization

Accounting for 30% of your FICO score, high credit utilization is one of the hardest-hitting negatives. Keep credit card balances low to maximize this area of the score. This is one of the most important parts of building your credit score.

Length of Credit History

Coming in at 15% is credit history; the longer, the better. Ideally, young people would open a line of credit as soon as possible, spend less than 30%, then pay it off monthly to help boost their score. Other than maintaining the line of credit forever, there’s nothing to actively do in this department.

Applications for More Credit

About 10% of the FICO score focuses on recent applications for new credit. Each application can deduct roughly two to five points from your score. In general, if you need a new line of credit, it’s best to finish shopping around within 2 weeks. The algorithm reportedly tries to identify when a person is rate shopping over a short period of time, rather than randomly applying for new credit over long periods of time. The former is a responsible thing to do, while the latter is not.

Types of Credit

Having a variety of credit lines is generally viewed more favorably than having several lines of the same credit. To be more specific, it’s better to have a mortgage, credit card, and student loan than three store credit cards. It’s important to note that your FICO score considers your history of managing these types of credits, so it’s not necessary, and often not even advisable, to have so much debt at once. Your variety of credit counts for 10% of the score.

Other Kinds of Credit Scores

Now that we’ve gone over the most common credit score, let’s briefly cover alternate scores. Each credit-reporting agency uses a customized scoring model.  Their calculations, like most, are secret. They usually don’t differ dramatically, but they can determine different types of risk. You may find that Experian gives you a better score than Equifax, for example, but the opposite is true for a friend with a similar credit history.

The three major credit reporting agencies came up with their own credit scoring model in 2006, called VantageScore. Its market share is under 10%, meaning it’s rarely used. However, its purpose is to score consumers across all three major credit-reporting agencies. Keep in mind that this isn’t the model used by each credit reporting agency, just a combination of their efforts.

The NextGen score was also designed by the FICO company. Its exact calculations are unknown, but FICO reported a slight increase of financially responsible consumers when using NextGen to consider credit applicants.

Lastly, the CE Score was developed by CE Analytics. Like NextGen and VantageScore, its market share is small and its calculations unknown.


A FICO score is currently the most important credit score. It’s a widely used calculation that determines how risky it would be to loan money to consumers like you. Someday, a more popular credit scoring model may overtake it, especially if that model is capable of finding the most financially responsible consumers while maintaining a business’s customer base.

For example, let’s say that a business only wishes to lend credit to people with excellent credit scores. To throw out made up numbers, a FICO score might deem 50 out of 500 recent applicants trustworthy enough to get credit from this business. If a new credit scoring model could select 60+ consumers out of the same 500 applicants who are just as or even more likely to pay back their loan, that credit scoring model might gain popularity.

Until then, the majority of people will continue to rely on FICO scores to determine risk. As the popular saying goes, “Don’t fix what isn’t broken.”

Posted on October 1, 2012 by in Credit Monitoring

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