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What is a FICO Score?

April 05, 2019 · 5 minute read

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What is a FICO Score?

More specifically, you might wonder, “What is a FICO® Score used for by lenders and why should my score be important to me?”

Well, if you plan to apply for a loan, your potential lender may assess you partially based on your FICO Scores. So, it’s reasonable to wonder how this score is calculated, how (or if) you can improve upon it, and how it differs from other credit scores.

In this post, we’ll share the history of FICO Scores, including how and why it was invented, plus answers to some frequently asked questions on this topic.

At a high level, there are actually multiple credit scores that lenders could use when considering an applicant’s eligibility for a credit card, a personal loan, a mortgage loan, and so forth.

FICO Scores, however, are trademarks created by the Fair Isaac Corporation, and were the first widely-used, commercially-available scores of their type. Put very simply, FICO Scores essentially “compress” a person’s credit history into one algorithmically-determined score.

Because FICO scores (and other ones like it) are based on analytics, rather than human biases, their goal is to make it easier for lenders to make fair lending decisions.

This is a very complex topic, of course, so what we’re about to dive into is meant to be educational only. Always speak with a tax or financial professional if you want or need credit-related financial guidance.

Creation of the FICO Scores

MyFICO.com shares a brief but interesting history of credit and the concept of developing scores to represent someone’s creditworthiness. As far back as 1841, an organization (the Mercantile Agency) collected information about businesses in an attempt to “standardize credit evaluation.” It wasn’t particularly successful, as data collected could be quite biased, including opinions about race, class, and/or gender.

By the 20th century, it was recognized that credit reporting was needed for individuals, too, but early attempts still included demographic information that could be used in discriminatory ways.

It was the 1970 Fair Credit Reporting Act (FCRA) that ushered in the beginning of today’s credit reporting. The purpose of the FCRA is to promote the accuracy, fairness, and privacy of information in consumer reporting agencies’ files. This is also when it became codified that negative credit information should be deleted after a certain time period had passed (seven to 10 years, typically).

In 1975, the first modern credit bureau was created: Equifax. Then, Experian and TransUnion formed, and these are today’s top three credit reporting agencies. But a problem still existed—and that was how to use information listed in a credit report in an efficient, fair, and unbiased way.

So, in the 1980s, credit bureaus began to work with Fair, Isaac, and Company, a tech firm founded in 1956. The result was FICO Scores and, although the algorithm has evolved over the years, the basic formula used at the inception is similar to what’s used today.

Is the FICO Score the Same as a Credit Score?

These two terms— FICO scores and credit scores—are often used interchangeably. More accurately, though, is that a FICO score is one type of credit score, the one most often used by lenders when making their decisions. There are in fact multiple types of credit scores, with each of them using analytics to create a rating that illustrates a person’s creditworthiness.

Some credit scores can be referred to as “educational ” ones, meaning they aren’t used often by lenders, but they can help consumers get a handle on how good their credit would likely be considered by a lender.

Scores provided by TransUnion and Equifax, for example, are considered to be educational credit scores. VantageScores is an example of another type of credit score that is used by lenders.

Want to find out what your credit score is?
Check out SoFi’s credit score monitoring
tool in the SoFi app!


How is a FICO Score Determined and What is the Credit Rating Scale?

There are five main components of your base score , with differing weights. They are:

•  Payment history: 35%

•  Amounts owed: 30%

•  Length of credit history: 15%

•  Credit mix: 10%

•  New credit: 10%

These percentages demonstrate how about two-thirds of your base FICO scores depend upon managing the amount of debt you have and making your monthly payments on time.

Now that you know how your base score is calculated, it’s important to understand the credit rating scale used. FICO’s base scores run from 300 to 850; the higher the score, the better the credit rating. And here are the ranges used:

•  Exceptional: 800-850

•  Very Good: 740-799

•  Good: 670-739

•  Fair: 580-669

•  Poor: 300-579

Interestingly enough, your base FICO Scores may vary slightly, even if your creditworthiness doesn’t fluctuate. That’s because it depends upon which of the three credit bureaus supplied the information for the calculation.

Here’s one more twist. FICO states that 90% of the country’s top lenders use their scores. Having said that, Forbes.com notes that the company has developed 60 different variations of its score since 2011.

For example, they’ve developed industry-specific scores , such as one specifically for auto loans (FICO® Auto Scores), others for credit card applications (FICO® Bankcard Scores and FICO Score 8) and multiple ones for mortgage lenders. Industry-specific FICO scores range from 250-900, compared to 300-850 range for base scores.

Boosting Your FICO Scores

Because the majority of your score is based upon the amount of debt you have and how timely you are when making payments, here are a few tips that could help boost your credit score:

•  Create payment reminders, since paying debt on time plays one of the biggest roles in credit scores. Perhaps your bank can send a reminder or maybe you could enroll in automatic payments.

•  Help reduce your overall amount of debt by coming up with a payment plan; MyFico.com recommends paying down your highest interest account first, while continuing to make minimum payments on everything else.

•  If you miss a payment, you could focus on getting current as quickly as you can and stay that way. Older credit problems, according to MyFico.com, have less of an impact than newer ones.

•  If you ever struggle to make a payment, you could try contacting your creditors and/or seeing a legitimate credit counselor for help. The MyFico site also notes that seeking assistance from a counselor will not hurt your FICO scores.

Here are a couple more quick tips, also from MyFico.com:

•  Keep balances low on revolving credit

•  Pay off debt; don’t just move it around

•  Don’t close credit cards to try to raise your scores

•  Don’t open credit cards that you don’t need

•  If fairly new to having credit, don’t open too many accounts too quickly

Personal Loan at SoFi

If it makes sense for you to apply for a personal loan, either for a major purchase or to consolidate high-interest credit card debt, know that SoFi offers low interest rates. Plus, we don’t charge any fees—that means no origination or prepayment fees.

Applying for your personal loan online is fast, easy, and convenient! Check your rate today.


No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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 on credit.
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