There’s more than a little confusion about the terms "credit score" and "FICO score." They’re often used interchangeably, but that’s a mistake. Though the government says FICO scores are the most common type of credit score in the U.S., FICO is just one credit-scoring model among several.
More: Get a free credit score and credit monitoring from Credit Sesame.
A little background
FICO, or Fair Isaac Corp., has been around since 1956, when it was co-founded by an engineer and a mathematician.
The company's modern credit scoring model was developed in 1989, but new versions are released every so often as lending requirements and data reporting evolve. The updates also reflect consumers' increasing dependence on credit in everyday life.
FICO Score 8 is currently the most widely used version.
How FICO scores are tabulated
Five factors impact your FICO score to varying degrees:
Payment history, worth 35% of your FICO score. Whatever you do, pay your bills, and pay them on time. Just one payment that’s 30 or more days late can ding your score. Foreclosures, bankruptcies and other black marks will haunt you for seven to 10 years.
Amounts owed, worth 30%. This one’s a little tricky. Good management of several credit accounts boosts your score. However, potential lenders get nervous when they suspect that you’ve bitten off more credit than you can handle.
Length of credit history, 15%. If you have a longtime account in good standing, don’t be too hasty to close it when you pay off your balance. FICO 8 factors in the age of your oldest account and the average age across all accounts.
Credit mix, 10%. Lenders like to see a healthy mix of several types of credit such as mortgages, car loans and credit cards.
New credit, 10%. Avoiding credit cards altogether could hurt your score more than help it. Just resist the temptation to apply for several cards at one time; a flurry of inquiries might be interpreted as financial panic.
Mind you, the five factors can affect your score positively as well as negatively.
How FICO scores are categorized
FICO scores range from 300 to 850 and break down this way:
Exceptional: 800 or higher.
Very good: 740 to 799.
Good: 670 to 739.
Fair: 580 to 669.
Poor: 579 or lower.
An exceptional credit score should land you the very best rates and terms from lenders, while a very good score is likely to bring you better-than-average interest rates. At the other end of the FICO scale, borrowers with poor credit often have to secure their loans with deposits and pay fees, if they can even get credit at all.
Be warned that lenders keep things interesting — or unnerving — by using their own discretion when they consider extending credit. You might be turned down despite a good score or be approved despite a fairly low one.
There are also customized FICO scoring models for specific types of credit, such as car loans.
And, you may notice variances in your FICO scores provided by TransUnion, Experian and Equifax, the three major credit reporting bureaus. Each bureau collects slightly different data.
FICO scores vs. VantageScore
FICO 8 may be the most popular scoring system, but it’s not the only game in town.
VantageScore is a relative newcomer launched by the major credit bureaus in 2006.
Early versions, including VantageScore 2.0, used a 501-to-990 range. VantageScore 3.0 adopted FICO's 300-to-850 range to ensure consistency in reporting. The update also reflected changes in the economy and borrowers' behavior.
VantageScore 4.0 was introduced in 2017, but the third version is still the most widely used.
How VantageScore credit scores are calculated
There are key differences between FICO 8 and VantageScore 3.0. While FICO bases scoring on five criteria, VantageScore considers six, and the categories are weighted differently:
Payment history, worth 40% of a VantageScore.
Length of credit history and types of credit, worth 21%.
Percentage of credit used, 20%. Also known as credit utilization.
Amounts owed, 11%.
New credit and credit inquiries, 5%.
Available credit, 3%.
As you can see, payment history and new inquiries are weighted similarly in both the FICO and VantageScore scoring models. VantageScore, however, seems more concerned with the age of your accounts, the types of credit being used and how much credit is being utilized.
Credit utilization is increasingly important to lenders. A credit card balance shouldn’t exceed 30% of the spending limit. Using 10% percent or lower is even better.
How VantageScore breaks down its scores
VantageScore ranges are often described using these terms:
Super prime: 781 to 850.
Prime: 661 to 780.
Near prime: 601 to 660.
Subprime: 500 to 600.
Deep subprime: 300 to 499.
VantageScore 3.0 ignores accounts in collections, whether they're paid or unpaid, in amounts under $250. It also ignores accounts negatively impacted by natural disasters. The last thing victims who've been wiped out in a hurricane need is a tarnished credit score.
VantageScore 4.0, the latest version, factors in something called trended credit data. That works in your favor if devil-may-care financial habits in your early 30s tanked your credit score. All is forgiven provided you keep your nose clean going forward.
Other credit-scoring models
If your head’s not spinning by now, consider these less common models.
TransUnion's TransRisk assesses risk on only new accounts. Experian has its own National Equivalency Score. Some major lenders have in-house or third-party statisticians create customized models.
Credit Xpert helps businesses approve new account candidates, and insurers have their very own insurance score system for scoring consumers. It gives providers pause before they issue policies.
In any case, you have to know the score in order to improve it.
More: Clueless about your credit score? Get your free credit score and credit monitoring from Credit Sesame today.