A Comprehensive Guide to FICO Scores and Their Calculation

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Understanding FICO Scores: A Comprehensive Guide

Many companies use credit scores when reviewing credit applications and managing accounts. One of the most popular types of credit scores is the FICO® Score. However, there are different versions of the FICO® Score, and companies can choose the version that best fits their needs. Here’s what to know about the different types of FICO® Scores, what factors into these credit scores, and why they’re important.

What Is a FICO® Score?

FICO was one of the first companies to create a credit score for lenders based on a consumer’s credit reports. The broad applicability and usefulness of the FICO® Score made it one of the most popular ways for companies to evaluate risk. Over the years, FICO has developed different versions of its FICO® Scores:

• Base FICO® Scores: These scores, such as FICO® Score 8, FICO® Score 9, and FICO® Scores 10 and 10 T, range from 300 to 850 and predict the likelihood that a person falls behind on any type of credit account.
• Industry-specific FICO® Scores: These scores are tailored for auto lenders and credit card issuers, ranging from 250 to 900.
• FICO® Scores using alternative data: The UltraFICO® and FICO XD scores consider data not traditionally found in your credit report, such as utility payments and banking history, ranging from 300 to 850.

How Is a FICO® Score Calculated?

Most FICO® Scores are based solely on the information in one of your credit reports from the major credit bureaus: Experian, TransUnion, or Equifax. FICO shares how different factors influence the average person’s FICO score, which can help you if you’re working to improve your credit. However, the specific scoring calculations are a trade secret, and the influence of different factors can vary depending on what’s in your credit report.

• Payment History (35%): Your payment history with credit cards and loans is the most important factor. Paying your bills on time is one of the best ways to improve your credit scores.
• Amounts Owed (30%): How much you owe, the balances on different types of credit accounts, and the number of accounts with balances can affect your FICO® Scores.
• Length of Credit History (15%): The age of the open and closed accounts in your credit report. A longer credit history is a plus.
• Credit Mix (10%): Your experience managing different types of credit accounts, such as credit cards and installment loans.
• New Credit (10%): Applying for or opening several new credit accounts in a short period can be a red flag for lenders.

FICO® Score vs. VantageScore

FICO® Scores are used by 90% of top lenders, according to the company. However, companies can also use VantageScore® credit scores when reviewing applications and managing customers’ accounts. Some companies also create and use custom scoring models instead of, or alongside, a FICO® Score or VantageScore credit score.

Why Are FICO® Scores Important?

Your FICO® Scores can affect many decisions and offers, including:

• Whether you get approved for a new loan or credit card
• Your interest rate and fees on new credit accounts
• Your loan amount or credit limit
• Whether you can rent a home or apartment
• The security deposit when you rent a home or apartment

Improving your FICO® Scores can help you get approved and receive better offers.

How to Get Your FICO® Score for Free

You can get your FICO® Score 8 from Experian for free with ongoing score tracking. If you want additional scores, such as industry-specific scores, look into Experian’s paid premium memberships. You may also be able to see one of your FICO® Scores for free from your lender, credit card issuer, or financial counselor.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to assist you with the best mortgage solutions tailored to your needs.

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