FICO Scores vs. Credit Scores: What's the Difference?
Doing a Credit Score check and FICO Score check is essential in ensuring your financial health and contributing to sound credit planning in the future. And the first step in this process is making sure that you understand what these type of credit scores mean!
Below we will look at what FICO and Credit Scores are, how they are calculated and how they can influence your chances of getting a credit card, loan, and mortgage.
What is your Credit Score?
Your credit score is a number that is assigned to you based on your credit history, your loan repayment record, and how well you manage your finances. This three-digit score gives lenders, credit card providers, and other organizations an indication of whether you are a sound person to extend credit to. If you have a good result in your credit score check, you will find you can access loans and credit lines with much more ease.
What is a Good Credit Score?
A higher credit score will be an indication to lenders that you are responsible when lending and have a good history of making your repayments on time. When lenders do a credit score check they will generally be looking for a score of 670 and above.
- A score of between 580 to 669 is labeled fair.
- A credit score of 670 to 739 is considered good.
- If you have a credit score of 740 to 700 this is very good.
- A credit score of 800 and above will show you are an excellent person to extend credit to.
When lenders and credit card providers are assessing whether to accept your credit application, they will consult this score. If you have a low score, they will be less likely to accept your application and you may find that you struggle to get credit cards and loans.
How are Credit Scores Calculated?
Your credit score is generated by the credit reports provided by the three credit bureaus Experian, Equifax, and TransUnion. These credit reports are a collation of your financial history based on your previous lending and repayment behavior. The information that is included in your credit report includes:
- Your personal information and address details
- Records of your credit and loan history.
- Matters of public record such as judgments, any bankruptcy files, and liens
- A list of organizations that have requested a copy of your credit score report.
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How Can you get a Copy of your Free Credit Reports?
You can get free access to your credit reports and access to your free credit score by ordering your report once a year from AnnualCreditReport.com
What are FICO Scores?
A FICO score is slightly different and is what lenders regularly consult when deciding whether to lend any money to you. it also feeds into your overall credit score. This score is very widely used and maintaining a good score is essential for your overall financial health in the long term.
What is a Good Fico Score?
Your FICO Score will be a three-digit number that ranges from 300 to 850. 850 is the best score so the closer you are to this the better, if you have a lower score around the 300 mark you will find it harder to get loans from larger companies. A low FICO score will limit your credit and loan opportunities and may mean you need to resort to lenders with very high interest and APR.
How is a FICO Score Calculated?
FICO scores are created by the Fair Isaac Corporation and are made up by compiling a range of information. The score is based upon the data in your consumer credit reports, including:
- Your payment history makes up 35% of your FICO score.
- Credit Utilization makes up 30% of your score.
- Your Credit Age accounts for 15% of your FICO number.
- Credit Mix (the type of credit you use) covers 10% of FICO scores
- The number of Credit Inquiries on your report will be 10% again.
The Best Ways to Improve your Credit Score
A good credit score is essential to your financial security as it gives lenders a quick indication of how carefully you use your credit.
FICO Score vs Credit Score - Which is More Important?
When you want to apply for a loan, credit card, or mortgage, lenders will likely do a credit score check. Most lenders also rely on FICO score checks as well, but there is also the chance that they will look to alternative reports as well.
How Can You Improve Your Credit Score and FICO Score?
To improve your FICO and Credit Score you should make sure that you pay all of your bills on time, keep your older credit accounts open and active and try to limit the number of times you apply for new loans and credit cards.
Summary - FICO Scores vs. Credit Scores: What's the Difference?
When working to improve your financial security and put yourself in the best position to apply for credit cards, loans, mortgages, and other lines of credit you need to make sure that your FICO and Credit Scores are in a healthy range. Lenders will be unlikely to consider you a good candidate for a loan if your score reflects a poor history of repayment.
If you are planning to apply for credit cards, a mortgage, a student loan, or any other kind of credit. Consider applying for a free copy of your Equifax Experian and TransUnion reports so you get a clear idea of your credit score. Your report will show what information is contributing to your score and what actions you need to take to improve your score.
Requesting a credit score report before you apply will help to protect your score. If you apply for credit and get rejected, this will negatively affect your score. So, protect your current score by investigating your current standing with a credit score check before you do anything else.