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What makes up FICO scores

by | Feb 11, 2021 | ABCs, Fico Scores

Understanding FICO Scores

As a Credit Restoration Specialist, it’s essential to have a strong grasp of the different credit scores your clients will encounter. One of the most commonly used credit scores is the FICO score. This document will explain what FICO scores are, how they are calculated, and where they can be viewed online using credit monitoring tools.

What Is a FICO Score?

The FICO score is a credit score model developed by the Fair Isaac Corporation and is the most widely used credit score by lenders. It ranges from 300 to 850, with higher scores representing better creditworthiness. FICO scores are used by 90% of top lenders when making decisions about loan approvals, credit cards, mortgages, and more.

Unlike the VantageScore, which is also popular, FICO scores focus more heavily on recent credit behavior, making them a key factor in major lending decisions.

FICO Score Ranges:

  • 300–579: Very Poor
  • 580–669: Fair
  • 670–739: Good
  • 740–799: Very Good
  • 800–850: Exceptional

FICO scores may vary slightly depending on which credit bureau is providing the report (Equifax, TransUnion, or Experian), but they are calculated using a consistent method across the bureaus.

How Is a FICO Score Calculated?

FICO scores are based on five major factors, each weighted differently. Understanding these factors is crucial to explaining to clients how their credit behavior affects their score.

  1. Payment History (35%) – This is the most critical factor in a FICO score. Late payments, missed payments, and delinquencies can negatively impact this score.
  2. Amounts Owed (30%) – This refers to the total amount of debt and, more importantly, the credit utilization ratio (how much credit is being used versus how much is available). Keeping this ratio low helps improve FICO scores.
  3. Length of Credit History (15%) – The longer a client has had credit, the better, particularly if they have a history of responsible credit use.
  4. New Credit (10%) – This includes the number of recent credit inquiries and newly opened accounts. Too many new accounts or hard inquiries in a short period can lower the score.
  5. Credit Mix (10%) – This considers the types of credit accounts the client holds, such as credit cards, loans, and mortgages. A diverse mix of credit types shows lenders that the client can manage different types of credit.

Where to Find FICO Scores Online

While many free credit monitoring sites provide VantageScores, clients may also want access to their FICO scores. These are generally found on paid credit monitoring platforms or through specific financial institutions. Here’s where to find FICO scores online:

1. MyFICO

  • Website: www.myfico.com
  • Type of Score: FICO Score 8 (most commonly used by lenders) and other industry-specific FICO scores.
  • Bureaus Used: Equifax, Experian, TransUnion
  • Description: MyFICO is the official site for accessing FICO scores. Users can view their FICO Score 8 (commonly used for general credit decisions) and other FICO score models (such as FICO Auto Score for auto loans). MyFICO offers comprehensive credit monitoring, score simulations, and alerts.

2. Experian

  • Website: www.experian.com
  • Type of Score: FICO Score 8
  • Bureaus Used: Experian
  • Description: Experian provides free access to FICO Score 8 through its website and app. Clients can see their score along with a detailed credit report and receive alerts when their score changes. Experian also offers additional services, such as credit monitoring and identity theft protection.

3. Credit Scorecard by Discover

  • Website: www.discover.com/free-credit-score
  • Type of Score: FICO Score 8
  • Bureaus Used: Experian
  • Description: Discover offers a free service called Credit Scorecard, where anyone—not just Discover cardholders—can view their FICO Score 8. The service provides a monthly updated score and a brief credit report.

4. Wells Fargo

  • Website: www.wellsfargo.com
  • Type of Score: FICO Score 9
  • Bureaus Used: Experian
  • Description: Wells Fargo offers its customers free access to their FICO Score 9 through the Wells Fargo Online Banking platform. This score is updated monthly and comes with personalized tips on how to improve it.

5. Bank of America

  • Website: www.bankofamerica.com
  • Type of Score: FICO Score 8
  • Bureaus Used: TransUnion
  • Description: Bank of America provides its customers with free access to their FICO Score 8 through online and mobile banking. Scores are updated monthly, and clients can track their credit score history over time.

How FICO Scores Differ from VantageScores

Clients may see differences between their FICO score and their VantageScore. It’s important to explain the key distinctions:

  • Different Scoring Models: FICO and VantageScore use different algorithms to calculate credit scores, leading to slight variations. For example, FICO weighs payment history and amounts owed more heavily, while VantageScore places more emphasis on recent credit behavior.
  • Usage: FICO scores are used by the vast majority of lenders, especially for large loans such as mortgages, auto loans, and personal loans. VantageScores, on the other hand, are more commonly found on free credit monitoring sites and might be used by some lenders for credit card approvals.
  • Version Differences: FICO has multiple versions (such as FICO Score 8, FICO Auto Score, and FICO Mortgage Score), while VantageScore uses versions like VantageScore 3.0 and 4.0. The different versions are used for different types of lending decisions.

What to Tell Clients About FICO Scores

When working with clients, it’s important to emphasize that the FICO score is the score most commonly used by lenders. While free sites may show VantageScores, clients should check their FICO scores, particularly when applying for loans or mortgages. Clients can access their FICO scores through the sites and banks mentioned above or by using paid services like MyFICO.

Help clients understand that focusing on improving their FICO score can have the most significant impact on their financial future. Encouraging responsible credit usage, lowering balances, and making timely payments are key steps they can take to boost their FICO score.

By understanding how FICO scores work and knowing where to find them online, you will be better equipped to help clients improve their credit and reach their financial goals. This knowledge will also help you explain the differences between various scoring models and guide clients through their credit restoration process.