You may have wondered about the term FICO score vs credit score—they sound similar, but what’s the difference? While they may seem interchangeable (and a little intimidating for most of us!), they actually are two different scoring models used by lenders and credit bureaus. In this article, we’ll explore the key differences between a FICO score and a credit score and why they matter.
What’s a credit score?
A credit score is a number that describes your creditworthiness based on your credit history. It’s a three-digit number that typically ranges from 300 to 850, with higher scores meaning better creditworthiness. Credit scores are used by lenders, landlords, insurers, and others to determine their risk level if they extend credit to you.
What’s a FICO score?
A FICO score is a specific type of credit score developed by the Fair Isaac Corporation (FICO). It is one of the most widely used credit scoring models in the United States and is recognized globally. FICO scores are calculated using data from your credit reports, which are maintained by the major credit bureaus: Equifax, Experian, and TransUnion.
1. Multiple credit scoring models: FICO score vs credit score
While FICO scores are the most well-known and widely used, there are other credit scoring models as well. VantageScore, for instance, is a competing scoring model developed by the three major credit bureaus. Each scoring model may use slightly different algorithms and criteria to calculate your credit score. This can result in variations in your scores across different models.
2. Scoring range
FICO scores typically range from 300 to 850, with higher scores indicating better creditworthiness. VantageScores have a similar range, but other scoring models may have different scales. It’s important to know which scoring model a lender uses when evaluating your credit application.
3. Factors that shape it
The factors that influence your credit score are generally similar across various scoring models. These factors include your payment history, credit utilization (the amount of credit you’re using compared to your credit limit), the length of your credit history, types of credit accounts, and recent credit inquiries.
4. Popularity and usage
When it comes to FICO score vs credit score, FICO scores are still the most widely used credit scores in the U.S., and many lenders use them to make lending decisions. VantageScore has also gained popularity in recent years and is used by an increasing number of lenders and financial institutions.
Why do FICO scores and credit scores matter?
Your credit score, whether it’s a FICO score or another type, plays a major role in your financial life. Here’s why it matters:
1. Lending decisions
Lenders use your credit score to assess the risk of lending you money. A higher credit score often leads to more favorable loan terms, such as lower interest rates and higher borrowing limits. Conversely, a lower credit score may result in less favorable terms or even loan denial.
2. Interest rates
Your credit score can directly impact the interest rates you receive on loans and credit cards. A higher score can qualify you for lower interest rates, saving you money on interest payments over time.
3. Rental applications
Landlords often check credit scores when evaluating rental applications. A good credit score can make it easier to secure rental housing.
4. Insurance premiums
Some insurance companies use credit scores to determine auto and home insurance premiums. A lower credit score may result in higher insurance costs.
While less common, some employers may check credit scores as part of the hiring process, particularly for positions that require financial responsibility.
How to improve your credit score
Regardless of the scoring model used, there are universal steps you can take to improve your creditworthiness:
1. Pay bills on time
Consistently make on-time payments for all your credit accounts.
2. Manage debt
Keep your credit card balances low relative to your credit limits (aim for a utilization rate below 30%).
3. Establish a credit history
Maintain a mix of credit types, like credit cards, installment loans, and retail accounts.
4. Limit credit inquiries
Avoid applying for multiple credit accounts in a short period, as it can negatively impact your score.
5. Use Brigit’s Credit Builder
Brigit’s Credit Builder* is a useful tool to help build your credit, and you can use it by contributing as little as $1 per month.
The bottom line: FICO score vs credit score
The terms ‘FICO score’ and ‘credit score’ are often used interchangeably, it’s important to understand that FICO scores are a specific type of credit score. Credit scores, like FICO and VantageScore, determine your creditworthiness and impact lending decisions, interest rates, and more. Maintaining good credit practices is key to achieving a higher credit score and having more financial stability and opportunities.
*Impact to score may vary. Some users’ scores may not improve. Results will depend on many factors, including on-time payment history, the status of non-Brigit accounts, and financial history. Results show that customers with a starting credit score of 600 or below were more likely to see positive score change results. A Brigit subscription is required. Credit Builder loans are not available in all states.
The Brigit Credit Builder is a service provided by Brigit and its bank partner, Coastal Community Bank, Member FDIC. The Brigit Credit Builder product is separate from the Brigit Instant Cash Advance service. Brigit Credit Builder installment loans are issued by Coastal Community Bank, Member FDIC, subject to approved underwriting practices.