FICO Score vs. Credit Score: What's the difference?

Erin Bruehl | November 17, 2021

fico-score-vs-credit-score-whats-the-difference

FICO scores and credit scores are both used to evaluate a person’s creditworthy status when they apply for a line of credit or a loan.

While standard credit scores go through one of three credit bureaus, a FICO score can give lenders a better impression of an applicant’s financial situation.

What Is a Credit Score?

A credit score is a three-digit number, starting at 300 and going all the way up to 850, that calculates the likelihood that you will pay your bills on time. The higher the number (the credit score), the better the chances that lenders will offer you favorable credit terms and trust you with large charges. The lower the number (a low credit score) means that lenders might be more reluctant to make such an offer because a low credit score suggests bad personal financial management.

There are a number of different models that determine your credit score. Most of them calculate the information provided by your credit report, like your payment history, your debts, and the length of your credit history. Some models look at your monthly income to produce a result.

Credit Scores and Bureaus

Credit scores are categorized in terms of:

Poor: 300-579
Fair: 580-669
Good 670-739
Very good: 740-799
Excellent: 800-850

These are what lenders and creditors (like banks, credit card companies, or car dealerships) look at when they decide whether to extend you a line of credit in the form of a credit card or loan.

Credit scores are important because people who have higher credit scores (better credit) are eligible to receive better credit terms, which might mean they have to make lower monthly payments or pay less interest. The credit score suggests that these people are trustworthy and responsible with their money, so banks and other lenders are inclined to give them more perks.

People who have a low credit score, on the other hand, will likely be subjected to higher interest rates and monthly payments because they are unknown entities to banks and other lenders. Those establishments might be less willing to trust them.

There are three companies that monitor your credit history and send it to lenders when you apply for a loan or a credit card: Equifax, TransUnion, and Experian. The score you have at each of these companies is independent of your score from the others. A car dealership might have a deal with Experian to get your credit score, while an apartment manager might consult Equifax.

FICO Scores

A FICO score provides a single alternative to the three credit reporting agencies. In some cases, FICO is preferred by lenders because it creates a more comprehensive picture of you as a potential borrower. FICO scores look at a longer financial history and account for extenuating medical or financial circumstances. Generally speaking, there tends to be more flexibility with FICO scores than there is for scoring from the three standard bureaus.

The name FICO comes from the Fair Isaac Corporation (named after its founders, Bill Fair and Earl Isaac), which introduced FICO scores in 1989. FICO scores and credit scores are often discussed interchangeably, but there are key differences.

The FICO score ranges from 300 to 850. Like typical credit scores, the higher the score, the better the credit.

FICO scores are also available on an industry-specific basis. That is, credit cards and car loans, for example, have scores starting as low as 250, and they go all the way up to 900. The FICO company uses their own formula to calculate their scores based on the data that exists in your pre-existing credit reports from the three main bureaus.

A good FICO score is between 690 and 719; however, every lender or credit card issuer will make their own determination as to what score will qualify for a line of credit or loan.

FICO scores are important because, like normal credit scores, creditors use them in deciding whether to approve loan and credit card applications. Being a proprietary calculation, FICO does not disclose its scoring formula, but it explains that the basics of paying bills on time and keeping balances low help calculate a favorable score.

FICO Scores vs. Credit Scores

A FICO score is one type of credit score, but there are also different types of FICO scores themselves. In 2009, for example, FICO introduced FICO 8; mortgage lenders use older versions of the FICO score. There are FICO scores for people looking to build or reestablish their credit. A key difference between FICO scores and credit scores is that standard credit scores do not usually have this level of nuance.

FICO scores and credit scores are often very similar — they look at the same information and produce alike results — but FICO creates a specific brand of credit score, while other companies create generic credit scores. This does not invalidate the other credit scores, but it does mean that some lenders prefer working with the specific data that a FICO score provides.

The Main Differences

A FICO score is functionally the same as a credit score, but there are key differences between the two. FICO scores have slightly different calculations, and there are many different types of FICO scores. Standard credit scores (and the models that calculate them) work the same way, for the same purpose, but without the degree of depth that comes with a specific FICO score.