When it comes to creditworthiness, you’ve probably heard two terms: FICO Score and Credit Score. Although these two terms are often used interchangeably, they are not the same thing. In this article, we will explore the difference between FICO Score and Credit Score.
FICO Score
FICO Score is a credit score developed by the Fair Isaac Corporation (FICO), which is widely used by lenders to determine an individual’s creditworthiness. The FICO Score ranges from 300 to 850 and is based on several factors such as payment history, credit utilization, length of credit history, types of credit, and new credit.
The FICO Score is calculated based on five factors, each with a different weight:
– Payment history (35%): This factor considers whether you have paid your bills on time, your late payments (if any), and any negative information such as bankruptcy or foreclosure.
– Credit utilization (30%): This factor looks at how much credit you are using relative to your total credit limits.
– Length of credit history (15%): This factor considers the age of your credit accounts and how long each account has been open.
– Types of credit (10%): This factor looks at the different types of credit you have, such as credit cards, loans, and mortgages.
– New credit (10%): This factor looks at the number of new credit accounts you have opened recently and how many hard inquiries you have had.
Credit Score
A credit score is a three-digit number that represents an individual’s creditworthiness. Credit scores range from 300 to 850 and are used by lenders to determine the risk of lending to an individual. There are several credit scoring models, including FICO Score, VantageScore, and TransUnion Score.
Credit scores are calculated based on different factors, depending on the credit scoring model. However, the most common factors include:
– Payment history: This looks at whether you have paid your bills on time.
– Credit utilization: This looks at how much credit you are using.
– Length of credit history: This looks at how long you have been using credit.
– Types of credit: This looks at the different types of credit you have.
– New credit: This looks at how many new credit accounts you have opened and how many inquiries you have had.
What’s the Difference?
The main difference between FICO Score and Credit Score is that FICO Score is a credit score developed by FICO, while Credit Score is a general term used to describe credit scores in general. FICO Score is the most widely used credit score by lenders, while other credit scores such as VantageScore and TransUnion Score are used less frequently.
Another difference between FICO Score and Credit Score is how they are calculated. FICO Score is calculated based on specific factors, each with a different weight, while Credit Score can be calculated using different credit scoring models and different factors.
In conclusion, when it comes to creditworthiness, both FICO Score and Credit Score are important. While FICO Score is the most widely used credit score by lenders, it’s important to understand that it’s not the only credit score out there. By understanding both FICO Score and Credit Score, you can take steps to improve your creditworthiness and increase your chances of getting approved for a loan or credit card.
