What Is a FICO Score?

FICO is an acronym for Fair Isaac Corporation, the company responsible for the most widely-used credit scoring model for consumers. FICO scores are used by most banks and financial institutions to determine the credit-worthiness of an applicant, and it is a measurement of the probability that a candidate will default on any credit extended to them. Typically a low FICO score will result in a credit denial or higher interest charges.

According to Fair Isaac Corporation, there are five primary components that comprise one’s credit score: 1) credit history, 2) amounts owed, 3) length of credit history, 4) types of credit used, and 5) recent credit applications. Follow this link to learn more about what makes up your credit score.

FICO scores range from 300 to 850 and the average American credit score is roughly 680. Not widely known, however, is that each consumer actually has 3 different FICO scores---one for consumer credit, auto loans, and mortgages. Each score is tweaked to measure the suitability of a consumer for the different types of lending. After all, some consumers are far more likely to default on consumer credit relative to their peers, but perhaps they are far less likely to be late on a mortgage payment. This being the case, the differences between the 3 scores can be quite dramatic. The “MyFico” Score that most consumers are able to obtain themselves online is their consumer credit score. Moreover, TransUnion, Experian, and Equifax each uses FICO to develop their own unique credit rating, so your credit score even varies with each credit reporting agency.

FICO credit scores are subject to federal regulation, and the statistical model is prohibited from considering race, color, religion, sex, national origin, or marital status. Federal legislation also makes it mandatory to disclose specific information to an individual as to what aspect of their credit score caused them to be denied credit.