Fico score and Credit score can often sound confusing with one another, and it may be because of their similar name or the fact that they both offer. However, these two are vastly different in terms of their work and what they mean.
In this article, we want to explain everything about them and clarify the differences between them in detail.
What is a FICO score?
While surfing the internet, you must have come across a lot of information talking about what a credit score is. But have you ever heard of a FICO score?
The FICO score was developed by Fair Isaac Corporation and is a three-digit numeric representation of a customer’s value. It is generally generated by three bureaus (Equifax, Experian, TransUnion) for a diversified scoring system. The bureau’s credit report outlook is similar to that of a credit score, but the source of the evaluation is different.
Let’s examine what a FICO score consists of:
Credit reports are used to calculate FICO scores, and the calculations are based on the following five factors:
Customer’s payment history: FICO credit scores are based on your payment history, accounting for 35% of your total score. If you pay on time, you will see an increase in your score, but you will lose points if you pay late or miss a payment.
Customer’s credit utilisation: The amount of credit utilised at any given time is called credit usage or credit utilisation. Credit usage contributes 30% to your FICO score.
Customer’s credit life: An individual’s credit age or credit life measures the average length of time they have used the credit. As a general rule, a person’s credit age should be higher than their credit life. FICO credit scores are calculated using this component to calculate 15% of the score.
Types of credit used by customers: FICO also considers the sorts of credit a person has, such as instalment loans vs. revolving credit. This credit mix accounts for 10% of FICO credit scores.
Credit inquiries made by the customer: Out of all, 10 percent of all the customer’s queries so far regarding loan or credit applications.
Lenders can use FICO credit ratings and other credit scores to forecast your ability and commitment to repay debt. It’s critical to think about maximising your credit score, no matter which credit scoring algorithm is employed. For further guidance, Buddy loan is a perfect place to get assistance for a peaceful experience.
What is the difference between a credit score and a FICO score?
To dispel your doubts, there are a few differences between a credit score and a FICO score. Following is a table that summarises these differences in an easy-to-understand format:
|Credit score||FICO score|
|A credit score is simply a measure of an individual’s creditworthiness based on his or her past credit history and ratings.||FICO scores are a kind of credit score but follows a different scoring model proprietary developed by FICO standards of scoring.|
|Credit score represents an individual’s creditworthiness in three-digit numeric expressions ranging from 300 to 900.||A FICO score is a three-digit value that ranges from 300 to 850, with 850 being the highest possible score.|
|It uses a simple pattern generated in one’s credit report based on the credit ratings and transaction history.||FICO uses a unique and slightly complex algorithm based on the information available in the credit report from each of the national credit bureaus.|
What are the benefits of a good credit score?
Whether you want to get a low interest personal loan or get a new line of credit, a good credit score is crucial. We confront many circumstances in our day-to-day lives where we get rejected for a loan application, and it is only because of a poor or bad credit score in many cases. Your credit score has a significant impact on the chances of getting a loan approved as it is a measure that the lenders use to gauge your ability to repay the loan within the set term.
However, if you want to save money and have a good credit score, here are a few suggestions: try to pay your bills on time, keep credit card balances low, keep old accounts open, use multiple forms of credit, and limit your borrowing. A good credit score also allows you to save more. The higher your credit score, the easier it will be to obtain approval for low-interest loans. However, it is always suggested to manage your credit and lines responsibly to build a healthy and lucrative score for the future.
Also Read : What Is A Credit Score And What Is It Used For?
Understanding FICO and credit scores becomes increasingly essential to solve financial problems like borrowing money or taking out credit cards. Having a good credit score will also help you enhance your worth as a borrower or customer who is concerned about your credit rating and specific transactions. In this regard, Buddy loan takes care of your financial urges and finds you a solution in no time.
People Also Ask
- How can you improve your FICO score?
You can boost your FICO score by paying your bills on time, keeping your credit card balances low, and paying off your debt.
- Which is better among FICO scores and credit scores?
FICO credit scores may or may not be better than other credit scores based on how the scores are created and used. FICO scores consider multiple factors, including payment history, credit use, credit age, credit mix, and credit inquiries, which help lenders determine the likelihood of you repaying a loan.
- Why is my FICO score 707 on one website and 750 on the other?
It happens because FICO scores vary from bureau to bureau. In this country, there are three credit bureaus, and scores generated by these bureaus may differ for one of the following two reasons:
- While generating FICO, it mainly aims at an individual’s credit utilisation which might change from time to time like a monthly evaluation. Hence different FICO models will result in other scores as well.
- Or the underlying data across all three bureaus is different; hence the cumulative scores are other.
Aside from these, other credit scoring algorithms may consider other factors to arrive at the same conclusion.
- Are credit reports and credit scores the same?
A credit score is a numerical measurement of one’s credit rating, which is determined by the individual’s credit history, and it is typically ranged between 300 and 900. A credit report is a compilation of information that reflects an individual’s financial health, and it can be viewed digitally.
- What is the standard credit score?
It is important to note that a standard credit score could be defined as a credit score between 700 and 900, which can help you get various offers, including easy loan approvals with lower interest rates.