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You may have heard of both FICO® and Experian, but the two companies serve different purposes.

FICO is a credit scoring model developed by the Fair Isaac Corporation (FICO) that lenders often use when assessing a borrower’s creditworthiness, or how likely they are to repay debts.

Experian, on the other hand, is one of the three major credit bureaus (along with Equifax and TransUnion) that collects credit and debt information and uses it to create individual credit reports. These credit reports offer more details about an individual’s credit history than FICO’s three-digit score.

Let’s take a closer look at what separates FICO vs. Experian, which credit score is the most accurate, and how to keep tabs on your credit score.

What Is the Difference Between Experian Score vs. FICO?

As we mentioned, Experian is a major credit reporting agency. It does not have its own credit scoring model. However, in 2006, it partnered with Equifax and TransUnion to create the VantageScore credit score model. Like FICO, VantageScore provides three-digit credit scores for consumers, though it uses slightly different factors and weightings.

The credit score Experian provides — sometimes called an “Experian score” — relies on both VantageScore and FICO Score.

FICO works differently. As a credit scoring model, it uses a proprietary algorithm to evaluate your credit risk. Specifically, the following factors affect your credit score:

•   Your payment history

•   The amounts you owe

•   The length of your credit history

•   How much new credit you have

•   The diversity of your credit mix

While FICO is used in the majority of lending decisions, some lenders use VantageScore.

Which Credit Report Is Most Accurate?

It’s common to have multiple credit reports, including ones with Experian, Equifax, and TransUnion. It’s also common to have minor differences in your credit file from bureau to bureau. That’s because lenders don’t always report the same information at the same time to every bureau. But rest assured, credit reports from all three credit bureaus are widely considered to be accurate.

That said, it’s a good idea to regularly review your credit report. You can access yours for free via AnnualCreditReport.com or through tools like a money tracker app.

If you find any errors or inconsistencies in your credit report, be sure to dispute them with the relevant credit bureau so the incorrect information can be removed.

Why Is My Experian Credit Score Different From FICO?

You may notice that your so-called Experian score is slightly different from your FICO Score. That’s because both scores are based on different scoring models. FICO uses its own algorithm, while Experian’s score uses both FICO and VantageScore.

While some variations are to be expected, if one score is drastically higher or lower than the other, it’s a good idea to review your credit reports and address inaccuracies.

Is Experian Better Than FICO?

No credit score is better than another. Some lenders prefer FICO, white others rely on VantageScore. Each model can provide lenders with different insights about a person’s financial habits.

The good news is that FICO and VantageScore generally calculate their scores with similar information, which means you can improve both scores simultaneously. Smart strategies include paying bills on time, keeping credit utilization low, and paying down balances.

Recommended: How Long Does It Take to Build Credit?

Is a FICO Score the Same as a Credit Score?

When comparing a FICO Score vs. a credit score, it’s important to understand that a FICO Score is a type of credit score. But of course, it’s not the only type of credit score.

VantageScore, for example, issues credit score models such as VantageScore 4.0 and VantageScore 4plus™. Experian, Equifax, and TransUnion also provide credit scores based on data in your credit report.

What Is My Real Credit Score?

There is no one true credit score. Instead, banks, lenders, and other companies may use different credit scores when they check your credit. And they could see different figures, depending on which credit score they use.

Fortunately it’s relatively straightforward to check your credit score without paying. That way, you can get an idea of what your credit score is and what lenders might see when they check your credit.

What Score Do Lenders Use?

Lenders can and do consider a variety of credit scores, depending on which scoring model works the best for their specific lending criteria. Unfortunately, it’s often difficult or even impossible to know which model a particular lender uses. However, the factors that impact your credit score generally hold true regardless of the credit score model used.

Understanding Various Credit Score Models

While most credit score models start with some of the same basic data, each one uses different information and weighs credit history information differently. This can mean that the different credit score models, such as FICO and VantageScore, come up with different credit scores, even for the same consumer.

Recommended: What Is the Starting Credit Score?

How Can You Check Your Credit Score?

Keep in mind that your credit score updates every 30 to 45 days, as new information comes rolling in from lenders. If you’re working on boosting your three-digit number, you may want to check on your progress every so often.

There are a few different ways that you can keep tabs on your credit score. You can sign up for a credit score monitoring service, which can provide regular credit score updates.

Another way is by using a spending app or credit card that provides access to your credit score as a feature or benefit. You may also have free access to it through your bank.

The Takeaway

FICO and Experian may be common names, but that’s where the similarities end. FICO is a widely used credit scoring model that creates a three-digit score based on reports provided by credit bureaus, including Experian. In addition to creating those detailed credit reports, Experian generates a credit score using data from FICO and another scoring model, VantageScore. Lenders may use both VantageScore and FICO when determining an individual’s creditworthiness.

Credit scoring models usually rely on a similar set of information, which means you can take the same actions to boost both scores. Making on-time payments, paying down what you owe, and diversifying your credit mix are all ways to help build up your credit score.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Is Experian or FICO more reliable?

Your VantageScore and your FICO Score are two different credit scores that use two different credit models. Both are considered to be reliable. But lenders may prefer to use one model over the other, depending on which one best fits their needs.

Why is my FICO Score different on Experian?

Though it does not have its own credit scoring model, Experian generates a score using data from VantageScore and FICO. FICO, on the other hand, creates its score using only its own calculations.

How close is your FICO Score to your credit score?

People have multiple credit scores. Your FICO Score is just one of them. Most credit scores use a similar set of data, which means credit scores usually vary by only a few points. If you spot a large discrepancy between your scores, take a look at your credit report and dispute any errors or inaccuracies you see.

Which credit score is most accurate?

No one credit score is considered more accurate than the others. Rather, different credit scores may provide lenders with different insights on spending or borrowing habits.

What is a good FICO Score?

FICO Scores are generally divided into five different categories, from Poor to Exceptional. A “good” FICO Score falls between 670 and 739. Having a FICO Score that is Very Good (740 to 799) or Exceptional (800 to 850) is even better.

Why is my FICO Score higher than my credit score?

Your FICO Score is just one of many credit scores that you may have. It may be higher or lower than other credit scores depending on the calculations used, including how the information in your credit report was weighed. As long as your various scores are within a few points of each other, there is usually no cause for alarm.

Photo credit: iStock/Prostock-Studio

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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The interest you’ll pay on a home equity line of credit (HELOC) is typically calculated by multiplying the daily interest rate by the average daily balance for the billing cycle. (This is called the average daily balance method.) The lower your daily balance, the less interest you’ll pay.

The variable nature of a HELOC interest rate is a big factor in this equation. Many HELOCs allow for interest rate adjustments once a month — so the amount of interest you pay varies from month to month, based on both your balance owed and your rate.

U.S. households had more than $396 billion in outstanding HELOC balances at last count, so plenty of homeowners are looking to minimize the amount of interest they pay. If you’re one of them, here’s a rundown of how interest is calculated on a home equity line of credit so you can take steps to minimize your costs whenever possible.

Basics of HELOC Interest Rates

To understand how does HELOC interest work and how much interest you’re being charged, it’s helpful to know the basics of how HELOC interest is calculated. Home equity line of credit interest rates are usually variable, so they can move up or down based on market conditions. Your monthly payment changes as a result. There is usually an interest rate ceiling and floor on a HELOC, which govern the highest and lowest the interest rate can go on your loan — so there are some controls built into this process.

How are HELOC rates calculated? The interest rate you pay is made up of two parts: the prime rate and a lender’s profit margin.

The lender’s margin stays the same throughout the life of your loan, but the prime rate can fluctuate based on market conditions.

HELOC Interest Calculation Methods

There are a few different ways your lender can calculate interest, though the average daily balance method is the one you’ll most likely see.

Average daily balance: An average daily balance calculation involves finding the average daily balance for the month and then multiplying it by the interest rate. This is the most common HELOC interest calculation method.

Adjusted balance method: The adjusted balance is where the lender subtracts any payments you made during the period to calculate interest charges from the “adjusted balance.”

Previous balance method: In this method, the lender uses the amount owed at the beginning of the period to calculate interest charges.

Recommended: What Is a HELOC?

Factors Affecting HELOC Interest Calculations

Several factors affect HELOC interest calculations. These include your annual percentage rate (APR), the extent to which you use your credit line, and whether you’re in the HELOC’s draw or repayment period.

APR

As mentioned previously, one of the defining characteristics of a HELOC is the variable APR, which can change over the course of the term. For many HELOC lenders, the interest rate can be adjusted once per month. But you still want to obtain the lowest possible interest rate at the outset of your line of credit.

Your personal qualifications and the attributes of your property and loan are the biggest factors in determining your APR. Some of these include:

•   Credit history: Your credit score and credit history factor into the interest rate your lender will offer you. A better credit score translates into a better interest rate on your loan.

•   Line amount: How large your HELOC credit line is will affect your interest rate.

•   Equity: Generally, the more equity you leave in your home, the better interest rate you’re eligible for.

•   Occupancy: An owner-occupied property typically gets a lower HELOC interest rate than an investment property, although some people do use HELOCs to fund investment properties because they think they can use a HELOC to build wealth.

Of course, it’s recommended to always shop around for a HELOC to ensure you find your best available rate.

Recommended: HELOC vs. Home Equity Loan

Credit Utilization

Lower charges on your HELOC create lower interest charges because with a HELOC, you only pay interest on what you borrow. A HELOC payment calculator can help you estimate what your monthly payment would be on your HELOC based on how much of the credit line you have used and your interest rate.

Draw vs. Repayment Period

With many HELOCs, there is a draw period and a repayment period. The draw period is where your minimum payment covers the interest charged on the loan. The repayment period is where you pay principal and interest in installment payments.

When it comes to the interest charges during the draw vs. the repayment period, the calculation is the same, but the interest rate may be different. The main difference is the principal doesn’t go down if you’re making interest-only payments during the draw period. Some borrowers may also have a fixed interest rate when they enter the repayment period.

Sample HELOC Interest Calculations

It’s helpful to look at the process of calculating HELOC interest rates and see a couple examples to understand how it works. Here’s a complete breakdown of the most common method for calculating HELOC interest, the average daily balance. Yes, it’s a lot of math — but if you have a HELOC, your lender runs the numbers for you and sends you a monthly bill.

Step 1: Find the Average Daily Balance

Add each day’s balance together, then divide by the number of days in the billing cycle.

Example 1: You have a $10,000 balance for each of the 30 days of the billing cycle.
Average daily balance = ($10,000 X 30 days) / 30 days
Average daily balance = $10,000

Example 2: You have a $10,000 balance for two days into the billing cycle and then pay it off. Average daily balance = ($10,000 + $10,000) / 30 days
Average daily balance = ($20,000) / 30 days
Average daily balance = $666.67

Step 2: Find the Daily Periodic Rate of Your HELOC

To find the daily periodic rate of your HELOC, divide the APR on your statement by 365.

Example: Your APR is 9.49%
Daily periodic rate = 9.49%/365
Daily periodic rate = .026%

Step 3: Find the Daily Interest Charge

You’ll find the daily interest charge by multiplying the average daily balance by the daily periodic rate.

Example 1: $10,000 average daily balance with a .026% daily periodic rate.
Daily interest charge = $10,000 X .026%
Daily interest charge = $2.60

Example 2: $666.67 average daily balance with a .026% daily periodic rate.
Daily interest charge = $666.67 X .026%
Daily interest charge = $.17

Step 4: Find the Total Interest Charges for the Billing Cycle

Multiply the daily interest charge by the number of days in the billing cycle. For this example, we’ll use 30.

Example 1: $10,000 average daily balance
Total interest charges = $2.60 X 30
Total interest charges = $78

Example 2: $667.67 average daily balance
Total interest charges = $.17 X 30
Total interest charges = $5.10

In this side-by-side comparison, the borrower who paid off the balance after two days saved over $70 in interest costs for the month.

Strategies to Minimize HELOC Interest Costs

Paying less interest is a smart move if you can swing it. If you need to use your HELOC to finance a large expense, keep these tips in mind to help you save on interest.

Make purchases toward the end of the billing cycle. With the daily balance interest calculation, you want to minimize the number of days you’re paying interest on a purchase. If possible, make purchases with your HELOC toward the end of your billing cycle and make payments shortly thereafter.

Pay earlier in the billing cycle. Since the interest is calculated daily based on the money you still owe, paying it earlier in the billing cycle can reduce the amount of interest you’ll pay. And if you can pay down the principal (as in example 2, above), even better.

Make extra payments. Extra payments reduce the principal, which reduces how much interest you’ll pay.

Convert to a fixed-rate loan. Converting your HELOC into a fixed-rate loan could lower your interest costs if you can lock in a lower interest rate. And even if you can’t, converting to a fixed rate protects you from further rate increases and ensures you have a predictable payment amount from month to month going forward.

Recommended: How HELOCs Affect Your Taxes

Comparing HELOC Interest to Other Borrowing Options

Here’s how a HELOC stacks up against home equity loans, personal loans, and credit cards.

Home Equity Loan

This is a different type of home equity loan that offers a fixed interest rate. Like a HELOC, it uses your home’s equity as collateral, but unlike a HELOC, with a home equity loan you receive your funds in a lump sum upfront and start repaying the principal, plus interest, immediately.

If you’re comparing interest rates on a HELOC vs. home equity loan, you’ll typically see lower interest rates in HELOCs initially, but over the years, a HELOC can adjust many times, whereas a home equity loan will always have the same interest rate.

Personal Loan

A personal loan usually has a higher interest rate than either HELOCs or home equity loans. However, your home isn’t used as collateral on the loan, which is a big upside. In early 2025, the average interest rate for personal loans was over 12%.

Credit Cards

Credit cards have significantly higher interest rates than either HELOCs or personal loans. Average credit card interest rates in early 2025 are over 21%. They’re very flexible, but shouldn’t be relied on as a lending tool because of the high interest rates.

The Takeaway

Paying less interest on your HELOC is a smart move for your finances. If you know how is a home equity line of credit interest calculated, you’ll understand how much you’re paying for borrowing money on a HELOC and use smart strategies to pay less. You might also give yourself a head start by paying more than the interest-only payment during the draw period, so that by the time you enter the repayment period, you’ve chipped away at your balance and lowered your payment amount.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

How often does a HELOC interest rate change?

HELOCs are typically variable-rate loans, and while it’s up to the lender to determine how often they change, the rate can change each month. Some HELOCs offer the option to lock in a certain amount borrowed, and the portion you’ve locked becomes a fixed-rate loan with a repayment schedule.

Can I deduct HELOC interest on my taxes?

There are a few scenarios where you can deduct HELOC interest on your taxes. If you use the funds to buy, build, or improve your residence, the interest is tax deductible. However, you would need to itemize your deductions, so consult with a tax advisor. This deduction may change after the 2025 tax year — another good reason to speak with an advisor.

What’s the difference between simple and compound interest for HELOCs?

The daily balance method used by HELOCs is considered simple interest. Compound interest is where interest is charged on top of interest, which isn’t a common way of computing interest for HELOCs. All of the specifics about your HELOC — including your interest rate, how often the variable rate may change, and your rate floor and ceiling, among other things — should be spelled out in your HELOC agreement.

Photo credit: iStock/Prostock-Studio

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