FICO® Scores Explained

FICO score, credit score, credit report, FICO scores explained

Your FICO® score seems to be used for everything these days. But what exactly is a FICO® score and what does it mean? A FICO® score is a particular type of credit scoring model, created by the Fair Isaac Corporation. Credit lenders use this score to assess a borrowers’ credit risk. There are several factors taken into account when calculating creditworthiness; your payment history, credit utilization ratio, length of credit history, credit mix, and any recent credit inquiries or new credit accounts.

Before taking a closer look at the calculations used to determine your FICO® score, here are some general credit terms to familiarize yourself with:

Credit Account

Your credit accounts include any loan accounts such as credit cards, auto loan or lease, mortgage loan, student loans, or personal loans. If you have a checking or savings account with overdraft protection, this is sometimes considered a credit account as well if the account is linked to a line of credit, but regular debit accounts are not considered.

Credit Bureau

The three major credit reporting bureaus are Equifax, Experian, and TransUnion. They collect information about your payment history to include on your credit report.

Credit Report

Your credit report contains information including:

  • Identifying information such as your name, address and social security number
  • Your credit accounts and details of those accounts including:
    • Credit Limit or Loan Amount
    • Account Balance
    • Number of Payments
    • Late Payments
    • Missed Payments
    • Opened and Closed Date(s)
  • Inquiries – If you apply for a new credit account, it’s reported as an “inquiry.” Checking your own score will not count negatively against you.
  • Other Late or Missed Payments, Collections, and Bankruptcies – Your typical bills (utilities, cable, phone, rent, medical bills, etc.) are not reported to the credit bureaus unless there has been a payment issue related to the bill.
  • Not included – Your credit report doesn’t include personal demographic information such as your age, gender, race, or income.

FICO® Score Breakdown

FICO® scores use the data on your credit report to assess how likely you are to repay your debts. The three-digit number, ranging from 300 to 850, is intended to reflect your creditworthiness. The data used to calculate your score is grouped into 5 categories and weighted by relative importance:

1. Payment History (35%) – Have all your payments been made on time? If you have made late payments, how late and how frequently? Do you have any accounts in collections?

2. Credit Utilization Ratio or Debt-to-Credit Ratio (30%) – How much of your available credit are you using?

3. Length of Credit History (15%) – How long have you had credit? What is the average age of your credit accounts?

4. New Credit (10%) – How many credit inquiries do you have? How many new accounts have you opened recently?

5. Credit Mix (10%) – What types of credit accounts do you have?

As you can see, making your payments on time and keeping your balances low accounts for roughly two-thirds of your score.

FICO® Scores are used by over 90% of lenders to make credit decisions. Your credit card company and other lenders have likely looked into your FICO® score already, so you should be keeping an eye on it too, especially before applying for new credit.

Now that you have an understanding of what a FICO® score is and what it means, go check your score! Eligible members are able to view their FICO® Score for free within Digital Banking. Knowledge is power, so it’s good to know your score and know where you stand credit-wise.

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