Whether you’re applying for a credit card, car loan or home mortgage, when you apply for credit lenders want to know any risk associated with loaning money to you. According to FICO.com, most lenders use FICO® credit scores to determine your credit risk.
As an individual, you have one FICO score for each of the three credit bureaus: Experian, TransUnion and Equifax. Each of the three scores is determined by the information each credit bureau keeps on file about you. As your information changes, oftentimes your credit scores also change. At any given time, your three FICO scores may influence (1) how much and (2) what loan terms (interest rate, etc.) lenders will offer you. Taking measures to improve your FICO scores can also improve the rates and loan terms lenders will offer you.
To calculate your three FICO scores, each credit report must include at least one account that has been open for more than 6 months AND include one account that has been updated in the last 6 months. This provides enough information – including recent information – to calculate a FICO score for each report.
The term “FICO scores” comes from the software developed by Fair Isaac and Company (FICO), which credit bureaus in the U.S. use to determine credit scores. Major credit reporting agencies give these scores to lenders.
FICO scores are used as an indicator of future risk based wholly on credit report data. Typically, the higher the credit score, the lower the risk for the lender. That said, however, credit scores do not indicate whether a particular individual will be a “good” or “bad” customer. And even though many lenders use FICO scores for help making lending decisions, every lender has their own strategy to determine an acceptable level of risk for a given credit product. A single “cut-off score” used globally by all lenders does not exist. In addition, there are a variety of different factors that lenders leverage to calculate your interest rate.
Other Names for FICO Scores
Each of the credit reporting agencies has a different name for FICO scores:
|Credit Reporting Agency||FICO Score|
|Experian||Experian/Fair Isaac Risk Model|
Multiple Credit Scores
In general, when people reference credit scores, they’re talking about your current FICO score. However, one solitary credit score used to make decisions about you does not exist because:
- Credit bureau scores aren’t the only scores used.
Some lenders calculate their own credit scores, which often will include your FICO score as well as additional information.
- FICO scores aren’t the only credit bureau scores.
While FICO scores are typically the most commonly used, other credit bureau scores do exist. Other credit bureau scores may evaluate your credit report a different way than FICO scores.
- Your personal credit score may be different at each of the main credit reporting agencies.
The FICO score from each credit reporting agency only takes into account the data in your report at that specific agency. If your FICO scores are different between the various credit reporting agencies, it’s no doubt because the information on file at each of those agencies differs.
- FICO scores change over time.
As your personal information changes, so will your credit score based on your credit report. That said, your FICO score from three month ago may not be the same score a lender would get from the credit reporting agency today.