Table of Contents
- The FICO 8 is the most widely used credit-scoring model
- Your FICO 8 score ranges from 300 to 850
- FICO 8 is calculated using several different measurements of your financial health
- Your FICO score impacts your eligibility for loans, credit, mortgages, and more
- FICO 8 is not the only credit-scoring model though it’s the most widely adopted
When it comes to renting a house, applying for a loan, or securing employment, your FICO score 8 is a key part of the process. This credit-scoring model takes several factors into account to assign lenders with a three-digit score, communicating their level of credit trustworthiness.
A FICO score can be the deciding factor in earning a life-changing loan or home, so it’s worth understanding how it works. Below, we’ll break down exactly what the FICO score 8 is and share a couple of strategies to help you build strong credit.
Understanding FICO 8
The FICO 8 is a popular scoring model named after the Fair Isaac Corporation which created the credit rating system in 1989. This scoring model is used to evaluate a lender’s creditworthiness and can help determine whether an individual gains access to certain types of loans, mortgages, or other forms of credit. Your FICO 8 score may come into play when being evaluated for a mortgage, credit card, personal loan, apartment rentals, insurance premium, or employment in some cases.
The Fico Score 8 model is the score most widely used by lenders. Other models, like your VantageScore, aren’t as popular.
The three major credit bureaus, TransUnion, Equifax, and Experian utilize the FICO scoring model, pairing consumers with a rating ranging from 300 to 850. Each FICO model weighs the lender’s trustworthiness based on various factors as showcased below. FICO 8 in particular is known for being less sensitive to an occasional late payment, though strongly biased towards holding a high credit card balance.
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What Factors Into FICO 8?
There are several factors that go into calculating your FICO 8 score, each weighed at a different level of importance :
- 10% – Credit Account Type: Your FICO score figures in the type of credit received, whether that’s a loan, mortgage, or credit card balance.
- 10% – New Credit: This element factors in the amount of recent hard inquiries as well as new credit added to your accounts.
- 15% – Length of Credit History: Your FICO score 8 considers the distance between your oldest and newest accounts, as well as the average age of your accounts.
- 30% – Amounts Owed: This percentage comprises your credit utilization rate, comparing what you owe with your overall credit limit.
- 35% – Payment History: The biggest piece of the pie takes stock of the timeliness of your payments, and how much credit you’ve taken on historically.
Once evaluated, your financial health will be assigned a FICO score rating, which is a three-digit number between 300 and 850. The general score classifications are as follows:
|FICO Score Range
|Bad or Poor
|300 – 629
|630 – 689
|690 – 719
|720 – 850
In most cases, you’ll have to fall into the “good” credit category to secure most loans and credit. You may be expected to fall into higher credit categories in more competitive markets.
How Do I Get My FICO Score?
Monitoring your FICO score 8 is a great practice that may be free depending on your financial institution. You can check with your credit card issuer, mortgage servicer, or auto lender to see if the institution participates in FICO Score Open Access, which allows you to check your FICO 8 score and the factors behind it for free.
If your financial institution does not participate in this free program, you can use trusted services like Experian IdentityWorks to check your score for a small fee.
The Importance of a Good Credit Score
A good credit score speaks to your credibility as a lender, opening doors to new lending opportunities, credit, lower insurance premiums, mortgage and rental rates; and more. As a key indicator of your financial health, your FICO score gives creditors a standard unit of measurement to assess how reliable you are as a consumer.
Great credit can provide you with a wider scope of lending opportunities, but it can also serve as a positive indicator of financial health. Monitoring and maintaining a high FICO 8 score is an excellent way to ensure you’re in beneficial financial standing.
How Can I Improve My FICO Score?
To improve your FICO score, it’s best to look into the factors that go into assigning a FICO score: the amount of accessed credit, length of credit history, your credit utilization rate, your general rate of payment, and how much you currently owe to other lenders.
Since the FICO 8 score tends to be biased towards low credit utilization rates, it’s best to eliminate your consumer debt and any other outstanding loans as soon as possible. Late payments should be avoided, and you’ll want to ensure you keep your oldest account active to allow for a longer credit history.
Credit monitoring platforms like Credit Karma and Credit Sesame offer user-friendly breakdowns of your score with suggestions for how to improve it. This may be helpful if you’re unfamiliar with what makes up your score.
Some larger moves, like paying off all collections on your credit report, may result in quick, higher rises in your FICO score. However, when it comes to building great credit, it’s typically a long game in terms of the day-to-day responsibilities. To improve your credit score, you’ll need to prove your credibility as a lender, which means reducing utilization, making payments within a timely fashion, and keeping a watchful eye on your FICO score to adjust your priorities accordingly.
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Frequently Asked Questions (FAQs)
When Is FICO 8 used?
FICO 8 is the most widely used credit score used by lenders to determine your trustworthiness. It is used when evaluating loan applications, credit eligibility, mortgages, and in some cases, employment eligibility.
What’s The Difference Between FICO 8 And FICO 9?
FICO 9 is the newest version of the credit-scoring model, though FICO 8 is still the most commonly used. FICO 9 tends to be a generally lower score, as each scoring model evaluates credit differently based on a variety of factors.
What Is A Good FICO Score?
Generally speaking, a FICO score above 670 can be considered “good”. Certain loans, rentals, and mortgages may have specific score requirements to gain access depending on the local demand.
How Do I Find Out My FICO Score?
One of the best ways to find out your FICO score is to contact the issuer of your credit card to see if they’ll provide free access. You can also use paid services like Experian IdentityWorks to check your score.
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- Removing Old Names and Addresses from Credit Report – How to keep your credit report information current and accurate.
- Soft vs Hard Credit Checks: What You Need to Know – Discover the impact of different types of credit inquiries.
- Tips for Comparing Credit Repair Companies – Key considerations for selecting a credit repair service.
- What Affects Credit Score? – Explore the factors that influence your credit score.
- What is a Good Credit Score? – Define and strive for a healthy credit score.
- What is Credit Monitoring? – The importance of keeping a watchful eye on your credit.