What Is My FICA Score?

What Is My FICA Score?
••• Belén

For many people, the very idea of a "credit score" leads to panic and frustration. Used by lenders and other creditors, FICO is the most commonly used credit rating system. Your FICO score not only determines whether you receive a loan, but also how much and at what interest rate. In addition, these scores may often be used by utility providers, apartment communities and even employers. But what exactly is a FICO score?


Developed in 1958, the FICO scoring system was created by Fair Isaac and Co. as a tool to help rate potential borrowers' creditworthiness. First used for credit cards in 1970, the FICO score relied upon information from consumer credit files to determine whether a borrower was more or less likely to pay back any borrowed funds. Since that time, the FICO credit rating system has become the standard method used by banks and other credit providers for their credit decisions.


The FICO score relies upon information about you and your credit history to determine whether or not you are qualified for a loan. Compiling data such as the person's late payments, accounts in collection, current debt and bill-payment history, the FICO score then compares this information to other consumers. Once the comparison is complete, the system uses statistical information to assign a numerical score to the borrower. This score is designed to reveal how likely you are to repay a loan and make payments on time. In the United States, this information is provided by three credit reporting agencies: Equifax, Trans Union and Experian and then reported back to the lender.


Because it is a ranking system, there are several categories of FICO scores. A higher FICO score indicates a better credit ranking and users who are ranked higher are more likely to be approved for a loan, receive higher credit limits and qualify for low interest rates. Ranging from 300 to 850, a score of more than 750 is typically considered excellent. A score between 720 and 749 is good, while 660 to 719 is seen as fair. If your score is 620 to 659, your creditworthiness is uncertain, and consumers with a credit score below 620 are deemed high-risk borrowers.


FICO scores are most often used by mortgage lenders to determine whether an individual or couple is eligible for a home loan and if so, what the interest rate and monthly payment can be. For most people, purchasing a home is the biggest investment they will ever make--and the monthly payment is usually the largest of their financial obligations. As a result, most borrowers find reduced interest rates and lower monthly payments quite beneficial. In order to receive these incentives, however, borrowers should do their best to maintain a good credit score. In addition to home purchases, your FICO score can also affect car payments, rental arrangements and occasionally even employment.


Because the FICO score is developed differently by each credit agency, your credit score may vary based upon the company. Therefore, you should regularly check your credit report with each agency for accuracy and to ensure your FICO score is similar across all three credit bureaus. An individual who is denied credit for any reason may obtain a free copy of his credit report within a yearlong period. It is important to note, however, that a basic credit report does not contain information regarding a person's FICO score, so you should expect to pay about $20 to obtain your exact score with each credit bureau. Although this may seem expensive, knowing your FICO score can help you make better credit decisions and save you money in the future.