What are FICO scores?

0-9 A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

FICO is the acronym for the Fair Isaac Corporation and the term most associated with consumer credit scores. Many businesses, especially consumer loan providers, use FICO scores when evaluating a loan request made for personal loans, credit cards and even home mortgage financing.

There are other credit scoring models on the market today, but FICO was the first to be widely established in the credit and lending market with its electronic scoring algorithm. Many lenders also rely on VantageScore, which was developed by the big three consumer credit agencies, Equifax, Experian and TransUnion.

The FICO score is a range of three-digit numbers attempting to determine the likelihood of default on a loan. Scores can range from as low as 300 to as high as 850. The higher the score, the better the credit history of the consumer.

Calculating FICO scores

Although the exact formula is proprietary, FICO scores are arrived at by using five groups of factors found in a consumer’s credit history. Those credit factor groups include the following:

  • Payment history on recorded debts
  • Available credit amounts and limits
  • Length of credit history
  • Types of credit accounts recorded
  • Inquiries

It’s important to remember that FICO scores are calculated based on the data in a person’s credit records with a credit bureau. If a person’s recent payment history, account balances, credit limits or other pertinent factors are not in the credit bureau’s data, then that missing information cannot be used to calculate that person’s FICO credit scores.

Payment history

The payment history of the borrower accounts for 35 percent of the scoring model. The payment history includes available records of payments made on time and payments that were made late, as well as payments that have gone into delinquency, default or judgment.

A late payment will make a FICO score drop and several late payments in a short period of time will cause the score to drop even further. On the flip side, on-time payment history can help improve and increase a person’s credit scores.

Available credit

Available credit accounts for 30 percent of the score and evaluates loan balances with available credit. The available credit amount is best understood in terms of credit cards. The difference between your current balance and your credit limit is your available credit. In fact, your available credit is measured as the percentage of your total credit card balances divided by your total credit limits. Higher percentages means that you are carrying a large credit balance and have little available credit – resulting in a negative impact on your credit scores.

A lower percentage means that you maintain less credit debts and have a lot of available credit. Having larger available credit is a positive factor when determining your credit score.

The higher the loan balance compared to the credit line, the lower the score will be. If a borrower goes over the credit limit the score will drop even further. The ideal balance-to-limit ratio is approximately 30 percent, meaning scores will improve if outstanding loan balances equal approximately 30 percent (or less) of established credit lines.

Length of credit history

The length of credit represents 15 percent of the score and considers how long the consumer has used credit. A longer credit history with lots of on-time payments can help improve FICO credit scores, especially compared to a borrower with a brand new credit profile.

Types of credit

The types of credit used and credit inquiries account for the remaining 10 percent of the FICO score calculation. Types of credit reflect the difference between different types of credit accounts. For example, FICO credit scoring models typically treat a credit card or unsecured personal loan differently than a student loan or home mortgage loan. Consequently, a late payment on a credit card may be bad, but a late payment on a mortgage loan may be even worse.


Finally, “hard” credit inquiries may temporarily lower a person’s credit report. A credit inquiry is recorded on a person’s credit record each time a creditor or lender pulls a person’s credit report (with the person’s authorization).

Improving FICO scores

If consumers want to establish or repair their credit scores, paying the most attention to the payment history and available credit will usually have the most profound impact on credit scores. If consumers pay on time and use their credit responsibly while keeping their credit card balances low, their FICO scores will continue to improve.

For more information about improving credit scores, please see the credit repair glossary page.

Disclaimer: NetCredit is a direct personal loan provider and does not provide financial advice, nor does it vouch for any vendor or service mentioned on our NetCredit personal finance blog or online consumer loan glossary. Always research and perform due diligence on any service provider or vendor before deciding to use them, and we recommend that you speak with a financial advisor regarding all decisions that will affect your finances.

back to glossary

Check Your Eligibility

This won’t affect your credit score!