What Is Your FICO® Score?
Every day, consumers are bombarded with ads touting the importance of knowing their FICO score. Many of these include links to websites where they can view their “official” FICO score.
So, consumers log on to these sites (some of which are free, others require a payment), receive their “official” FICO score (in this case, let’s say it’s 684), apply for a mortgage or other loan product that they are aware requires a 660 to qualify and… they are rejected because their FICO score is too low.
A few days later they receive an adverse action notice that, along with all of the other required legal jargon, presents them with their credit score, pegged at 647.
The consumer, understandably upset, reaches out to the lender to let them know that their underwriting team must have made a mistake, because the consumer knows exactly what their FICO score is, having received it just before applying. The lender responds with, “well, which FICO score did you receive?”
The Basics of FICO
FICO Scores were developed by Fair Isaac Corporation. Fair Isaac Corporation created the basic formula that is used to coordinate consumer credit data for all loan types. The credit data is collected by the three major credit bureaus (Equifax, Experian and TransUnion). These three agencies maintain a record of your credit history, which makes up your credit report. Since information can vary in your credit report between the bureaus, each one can (and usually does) have a different set of factors that go into making up the overall FICO score. This information is analyzed by Fair Isaac Corp. to create a single, three-digit score for each bureau. So, even in its most basic state, a consumer starts out with three different FICO scores.
While many Americans are aware that credit decisions are often made based on the strength (or lack thereof) of their FICO credit score from the three bureaus, many do not realize that there are also a number of “official” FICO scores being used by each of the three bureaus.
According to a report that was issued by the Consumer Financial Protection Bureau (CFPB) in 2012, there are at least 49 various FICO credit scoring models alone:
Many scores exist in the marketplace: It is unclear the extent to which consumers understand that multiple scores exist in the marketplace. It is likely that many consumers incorrectly believe that the scores they purchase are the same scores used by lenders in evaluating their applications for credit. As described throughout this paper, literally dozens of different credit models are used by lenders. FICO alone has over 49 credit scoring models.1 Consumers additionally can purchase a range of educational scores or VantageScores.2
In addition to the number of FICO scores that are in existence, they can also be rather confusing to differentiate side-by-side.
The current scoring model is FICO 9. However, many lenders are still using scoring associated with the previous FICO 8 model. The FICO 8 model has a score range of 300-850, while the FICO 9 model has a scoring range of 250-900. To make things even more confusing, there are multiple FICO 8 scores. If we just use Experian as an example, there are: FICO Auto Score 8, FICO Bankcard Score 8, and FICO Risk Score - Classic 8. There are also multiple versions of earlier score models as well.
More Than FICO
If the number of FICO scores already in existence isn’t complicated enough, quite often, the consumer isn’t getting a FICO score, “official or unofficial”, at all.
Websites - typically those that offer “free3” versions - often provide a VantageScore rather than a FICO score. Vantage scores are a joint venture amongst the credit bureaus. While the Vantage score may give you an idea of what ballpark you are in when it comes to credit scoring models, it is not the score that creditors use when making a credit decision. Vantage 2.0 scores range from 501 to 990. Vantage 3.0 scores range from 300 to 850. The high end of a FICO score range is typically 850 or 900 (for those counting, we’ve now mentioned at least 3 different score ranges!). So a Vantage score can be significantly higher than a FICO score, thereby giving the consumer a false sense of where their credit score truly stands.
What Does It Mean?
So, when it comes down to it, there are many different FICO scores (as well as other credit scoring models) that lenders may use. Although the scores may differ, the credit rating that they correspond to typically remains consistent. These different models are designed to give the lender insight into the risk associated with providing credit to a borrower on specific products.
What lenders are really looking to do is lower their risk associated with lending credit to consumers. FICO scores are an easy way for them to gauge this risk. The higher your FICO score, the less of a risk the bank perceives you to be. So regardless of what model is being used, it’s in your best interest to maintain a strong credit profile, which will enhance your FICO score and strengthen the odds for obtaining credit at better rates in the future.
So, if you’ve ever wondered why many lenders will not disclose what the actual FICO requirements are for obtaining credit, or just reply with “you need good to excellent credit”, it’s because quite often comparing the various FICO scores that lenders may use (some of which you may not have access to) can be harder than telling a consumer what the factors are that the lenders look for that would put them in the credit rating range the lender requires. After all, as stated above, there are over 49 FICO scores available.
- New York Times - "Why you have 49 different FICO Scores"
- Consumer Financial Protection Bureau - "Analysis of Differences between Consumer- and Creditor-Purchased Credit Scores"
- Consumer Financial Protection Bureau - "CFPB Orders TransUnion and Equifax to Pay for Deceiving Consumers in Marketing Credit Scores and Credit Products"