Not all credit scores are FICO Scores. For over 25 years, FICO Scores have been the industry standard for determining a persons credit risk. Many lenders use FICO Scores to make faster, fairer, and more accurate lending decisions. Other credit scores can be very different from FICO Scores—sometimes by as much as 100 points!
Whats in a name? When it comes to FICO Scores versus other credit scores, the answer is “quite a lot.”
Many lenders use FICO Scores to make decisions about credit approvals, terms, and interest rates. Chances are when you apply for a mortgage, an auto loan, credit card, or a new line of credit, the bank or lender is looking at your FICO Score.
The reason? Lenders know what they are getting when they review a FICO Score. FICO Scores are trusted to be a fair and reliable measure of whether a person will pay back their loan on time. By consistently using FICO Scores, lenders take on less risk, and you get faster and fairer access to the credit you need and can manage.
FICO Scores use unique algorithms to calculate your credit risk based on the information contained in your credit reports. While many other companies design their credit scores to look like a FICO Score, the mathematical formulas they use can vary greatly.
Unfortunately, the methods used by these other companies can lead to credit scores that are very different from your FICO Score. And even just a few points difference can have significant consequences on your terms and rates—potentially costing you hundreds or even thousands of dollars. Learn how FICO Scores are calculated.
When it comes to your credit, having a good credit score is crucial for getting approved for loans and credit cards with the best terms But with so many different types of credit scores out there, it can get confusing to know which one truly matters the most to lenders
The short answer is yes – your FICO score is often more important than other types of credit scores Let’s take a deep dive to understand why,
What is a Credit Score?
A credit score is a three-digit number calculated based on information in your credit report, which shows your credit history and activity Credit scores range from 300 to 850, with a higher score indicating to lenders that you are lower risk for not repaying debt.
There are a few major companies that calculate credit scores, with the most common being FICO and VantageScore. While both evaluate similar factors like payment history and debts owed, they use different formulas which can lead to differing scores.
What is a FICO Score?
FICO scores are a type of credit score calculated by the Fair Isaac Corporation. FICO introduced the first credit scoring model back in 1989, and since then their scores have become the industry standard used by 90% of top lenders when evaluating credit applications.
Some key things to know about FICO scores:
- They range from 300 to 850.
- Higher scores are better, with above 800 considered exceptional.
- Key factors include payment history (35%), credit utilization (30%), length of credit history (15%), and new credit inquiries (10%).
There are actually dozens of different FICO score versions tailored to specific types of lending, including mortgages, auto loans, and credit cards. But FICO Score 8 is a base score that predicts consumer credit risk overall.
Why Do Lenders Rely on FICO Scores?
When you apply for any type of credit, whether a credit card, personal loan, or mortgage, the lender will almost always check your FICO score. There are a few key reasons why it’s trusted in the lending industry:
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Proven accuracy: FICO scores have been time-tested over 25+ years to reliably predict the risk of borrower default. Their formulas and algorithms are honed to be accurate indicators.
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Industry standard: The widespread use of FICO scores by lenders makes credit decisions more consistent and fair. Applicants can be more confidently compared.
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Ease of use: Lenders are familiar with FICO scores and know how to interpret them. Alternative scores would require re-training systems and employees.
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Consumer awareness: Most people know that FICO scores indicate their creditworthiness. Other lesser known scores could cause confusion.
Basically, FICO scores remove uncertainty for lenders while providing consumers with a trusted understanding of their credit standing. Both sides benefit from having an industry-standard scoring model.
How FICO and Other Credit Scores Differ
While VantageScore and other credit scores do evaluate your credit info similarly to FICO models, there can be major differences between the scores themselves:
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Scoring formulas: The mathematical formulas used to calculate scores can vary significantly from FICO’s closely guarded algorithms. This means the importance of factors like debts and payment history are weighted differently.
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Score swings: Alternative credit scores often differ from your true FICO score by as much as 20 to 100 points in either direction. If you rely on a non-FICO score, you could severely misjudge your approval odds and terms.
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Terminology: Some credit score companies use terms like “good” or “poor” to grade scores, rather than FICO’s well-known scale of exceptional, very good, good, fair, and bad. This causes confusion interpreting scores.
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Industry usage: No other credit scoring model comes close to FICO’s 90% usage by top lenders. Most alternative scores are geared more toward educational use rather than actual lending decisions.
When FICO Credit Scores Matter Most
As you can see, your true FICO score should be the primary credit score you rely on when applying for any type of credit, especially major loans like a mortgage or auto financing. Here are some key times when checking your FICO score is critical:
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Pre-qualifying for credit cards: FICO scores help predict approval odds and initial credit limits offered.
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Shopping for the best loan terms: Minimum FICO scores are often required for the best interest rates from lenders.
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Monitoring your credit standing: Changes in your FICO scores reflect how your credit profile is evolving.
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Avoiding surprises: Being aware of your latest FICO scores ensures no unexpected disappointments when formally applying for credit.
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Major purchases: For huge loans like a home or car, checking your FICO scores from all three credit bureaus helps avoid issues.
The takeaway is that FICO scores give you the real picture of how lenders will assess your creditworthiness. Relying solely on alternative credit scores could provide a misleading perspective.
Tips for Managing Your FICO Scores
Now that you know why FICO scores are so important, here are some tips for maintaining and improving them:
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Check your FICO score frequently to monitor changes. Many credit cards and personal finance sites offer free access.
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Pay all bills on time to benefit your payment history. Even being a few days late can hurt.
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Keep credit card balances low. High balances close to the limit drag down your credit utilization ratio.
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Limit new credit applications. Too many hard inquiries from applying for credit dings your FICO scores.
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Build long credit history. Having open accounts in good standing improves FICO scores over time.
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Correct any errors in your credit reports that may be lowering your FICO score unfairly.
The key is developing strong credit habits to keep your FICO scores trending upward. Be sure to check your latest scores when applying for new credit too.
FICO vs. Credit Score: Final Takeaways
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FICO scores are trusted as the industry standard for lenders, used in 90% of credit decisions. Other credit score models are geared more for educational purposes.
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Scoring formulas and terminology differs significantly between FICO and other credit score versions, leading to score confusion.
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Your true FICO credit scores from all three bureaus are vital to check when applying for major credit like a mortgage.
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Managing your credit responsibly over time will maintain higher FICO scores to ensure you get approved for the best credit terms.
FICO Scores vs. other scores: Compare for yourself
| FICO Scores | Other Credit Scores |
|---|---|
| The standard for over 25 years, used by 90% of top lenders | Often called “educational” scores |
| Makes lending decisions consistent, fast, and fair | Can be significantly different than your FICO Scores |
| Gives you a better understanding of your credit and more confidence when you apply | Can be off by up to 100 points —causing you to under or overestimate your creditworthiness |
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FAQ
Which is better, FICO or credit score?
FICO® Scores are a type of credit score, but not all credit scores are FICO® Scores. Checking your FICO® Score may be more beneficial, as 90% of top lenders use FICO® Credit Scores. There are different versions of FICO® Credit Scores finetuned for different credit products (like home and car loans).
Do banks use FICO score vs credit score?
Banks use both FICO scores and credit scores. While FICO scores are a specific type of credit score, they are not the only type used by lenders.
Why is my FICO higher than my credit score?
How close is your FICO score to your actual credit score?
Basically, “credit score” and “FICO score” are all referring to the same thing. A FICO score is a type of credit scoring model. While different reporting agencies may weigh factors slightly differently, they are all essentially measuring the same thing.