What is a FICO Score?

A FICO score is a credit score measurement that is used to determine the likelihood that you will complete credit payments on time. Over 90% of US lenders use the FICO system to assess your credit risk, as this information is very useful for them when assessing you for a possible loan or credit card. FICO scores range from 300 (very bad) to 850 (very good) and allow lenders to make well-informed decisions about you as a borrower. FICO scores interpret your current and historical credit and financial data in order to produce an easy-to-understand 3 digit number that signifies your financial responsibility. The ranges are as follows:

740-850 = excellent
700-740 = good
640-700 = average
500-640 = bad
300-500 = very bad

Your FICO score is different from your credit report, though they are interlinked. Your credit report is a financial report on numerous aspects of your credit usage. Your credit report is gathered by an organization known as a “credit bureau”. If you are a US citizen, the 3 credit bureaus you are likely to encounter are Equifax, Experian, and TransUnion. These credit bureaus take into account your credit history, credit utilization, late payments, credit inquiries, and many more factors when writing up your credit report. Your credit report is then sent to FICO (a separate organization) who interprets the data and subsequently assigns you a FICO score. Your FICO score is likely to differ if you retrieve it from the different credit bureaus, as they all collect data slightly differently, and thus send off differing (though similar) reports to FICO for assessment.

FICO scores are dynamic, and can shift up and down as and when data is updated at the credit bureaus. FICO scores themselves do not determine whether you are approved for a loan or not; they are simply there to advise lenders on your riskiness. The decision of whether to accept you or not is ultimately down to the lender. FICO scores are nonetheless efficient, as they streamline the loan and credit application process for both the borrower and the lender. FICO scores may not always be perfect, but they are accurate enough that most lenders trust them. FICO scores are ultimately a godsend for lenders, as they stop them from having to trawl through masses of data and conduct in-depth investigations into your credit history; it’s all there in 3 simple figures.

FICO scores apply the same sets of rules to all borrowers. Your sex, ethnicity, region, and salary (amongst other things) are all completely irrelevant. All that matters is that you manage credit wisely and pay your bills on time. Age is, however, sometimes an advantage. This is because older people (with good and lengthy credit histories) tend to have a higher FICO score, simply because they have proved their risk-aversion for longer than younger people have.

The transparency of FICO scores makes them convenient for both the lender and the borrower. You have access to your FICO score just like any potential lender would. This allows you to review your score and make any necessary changes to your spending habits in order to improve it.