While it can seem very mysterious, banks and lenders do have a system for determining whether you qualify for a loan, an important component of which is your FICO score. So what is a FICO score and its credit score range? A FICO score is a three-digit number ranging from about 300 to 850 used to determine the likelihood that you will pay off your credit obligations. It is a snapshot of your credit health taken at one point in time. This number is based on five aspects of your credit profile:
- Payment History
- Amount Owed
- Credit History
- Credit Mix
- New Credit
How is FICO Score Used?
Lenders pull FICO scores to help determine whether to grant you a loan or approve a credit card and if so, at what interest rate. Generally speaking, the higher your score, the lower your interest rate. But lenders aren’t the only ones who use FICO scores. Insurance companies, cell phone providers and even landlords may also use these scores to make a credit decision about you. It’s important to know what is a credit score and everything it entails.
Understanding the FICO Score Ranges
Your FICO score can range from 300 to 850 and can determine what credit is available to you and how much interest you’ll pay. Lenders and creditors look at your FICO score to judging your credit-worthiness. It provides a good barometer of how likely you’ll pay back the lender. These FICO score ranges tend to vary depending on who you ask but typically this is the range of FICO scores:
- 800+: Excellent FICO score
- 740–799: Very Good FICO Score
- 670–739: Good FICO Score
- 580–669: Fair FICO Score
- 579 and lower: Poor FICO score
Having a low FICO score isn’t ideal but there are 8 steps to improve your credit score.
Several FICO Scores Affect Your Credit Score
Each of the three major credit reporting agencies—Experian, Equifax and Trans Union—sells a FICO score based on your past performance with credit. Your scores may vary between the different credit bureaus because it’s based on the specific information contained in your credit report and stored by that reporting agency. For instance, if you declared bankruptcy and one bureau doesn’t have that information, then that score will be significantly higher than scores from the other bureaus that are aware of your bankruptcy. This can work to your disadvantage as well. It’s recommended that you pull your credit reports regularly and dispute any errors to the reporting credit agency right away.
Changing FICO Scores
Your FICO scores will change as your credit profile changes. This means that the score a lender would receive today is not necessarily the same number that they would have gotten six months ago. Keep in mind that while a default or bankruptcy will change your FICO score quickly, improving your score will take time. It’s advisable to pull your FICO credit score at least six months before applying for a substantial loan so you can address any issues that may prevent you from getting credit. If you’re in the process of improving your score, you probably want to pull your scores regularly to monitor your progress. If your FICO score is less than ideal, read our 5 tips on how to get out of debt to improve your situation.
Free FICO Credit Reports
Under the law, if a reporting agency is going to sell information about you they have to provide you with the same information every year. To get a copy of your free credit report from each of the three major credit reporting bureaus, go to www.annualreports.com. Keep in mind that the free offer is only good for your reports, not for your credit scores. To receive your credit scores, you must pay the reporting agency a fee.
Before FICO, lending decisions were slower and more expensive. Now, creditors and lenders can make a determination about your credit-worthiness in minutes. Additionally, since FICO scores are based solely on the information in your credit report, decisions are impartial and not based on gender, nationality, marital status, or religion.