You probably already know that credit score is important but do you know there are different types? Conventional credit scores if often used by banks in order to determine whether to give you a credit card or not. A FICO score on the other hand is most commonly used by lenders to determent whether to give you a loan or not. Here we will discuss what exactly they are and what are some key differences.
Considering they are both types of a scoring systems you are probably wondering are FICO score and credit score the same thing.
A credit score is essentially a three-digit number different landlords use to determine your deposit on an apartment or mobile providers in giving you a good cellphone plan. A FICO score is the most popular type of credit score used to assess the risk of giving a loan to a certain individual.
A credit score is a numerical representation of your credit history. FICO score compared to a credit score has multiple factors going into it such as:
- payment history- the most important factor for both
- credit utilization- the ratio of your total credit to your total debt.
- length of credit history
- new credit
- types of credit in use
There are also many different FICO scoring systems like- FICO Score 8, FICO Score 10, Auto Score 10, Bankcard Score 10, etc.
Different lenders may use different types of scoring to determine whether to give you a loan or not. Types also vary depending on what type of loan you need. If you need a loan for a new vehicle your dealership will probably use the FICO Auto score.
Both of these have the same scoring system that ranges from 300 to 850. If your score is between 300 and 580 it is considered poor and anything above 740 is considered good.
The bottom line is that both of these systems can be important when it comes to getting approved for various things like credit cards and loans.
What Is a Credit Score?
A credit score versus a FICO score is a number that best represents your personal credit history. It can be used by lenders to determine whether you are a good candidate for a loan or not but it’s typically used for other things. This three-digit number is most commonly used to decide whether you are eligible to get a mortgage, credit card, or some other type of line of credit. The higher your credit score, the better your chances are.
What Is a FICO Score?
Now let’s take a look at what is a FICO score vs a credit score. A FICO score compared to a credit score, is a type that is used by lenders to help them decide whether or not to give you a loan. The score is based on many factors as we previously discussed and is designed to give lenders an idea of how likely are you to pay back a loan on time.
FICO Score ranges from 300 to 850. A better score will give you a better deal with a lender. Simply put, if you have a good score (generally above 740) a lender will see your loan request as low- a risk investment and will give you lower interest rates and better terms.
Your FICO score can be improved so be sure to take the necessary steps in order to do so.
Credit Score vs. FICO Score: Are They the Same?
Many people consider these two to be the same thing and if you are also wondering if credit score is same as FICO, let’s take a look at the main difference between them.
A credit score is a number that is assigned to you based on your credit history. This number is widely used to determine a person’s creditworthiness. FICO score compared to a credit score is a specific type that is used by 90% of lenders. For example, if you go to the dealership to get a car, they will likely use your FICO Auto Score to determine whether to give you a loan or not. But if you want to buy a cellphone, providers will likely use your credit score to see how big your down payment should be.
FICO versus credit score takes into consideration many factors and gives lenders a more holistic view of your financial history than looking only at your credit.
Are There Any Types of Credit Scores Besides FICO?
There are other types of credit scores besides FICO. One commonly used by lenders that don’t use FICO is VantageScores. They both have the same range and can be used almost interchangeably. The one thing differentiating them is how important already mentioned factors are. For instance, VantageScore gives more attention to your payment history and length of credit history than other factors included.
Why Is a Credit Score Important?
Your personal credit score plays a big part in determining the size of a deposit required in order to get a smartphone, cable services, or rent an apartment.
Don’t forget your credit score is also an important factor a bank looks at, before deciding to give you a credit card or mortgage. A high credit score means you’re a low-risk borrower, which means the bank will give you a lower interest rate on a loan.
You can easily check your credit score by going to a bank or even online if your chosen bank has that service.
Knowing both your credit and FICO score can be quite important. This will give lenders not only an idea of whether you are a good candidate for a loan or not but also what your credit card limit can be.
There are many similarities between them, but knowing the differences can help you know which one to improve depending on your needs.
If you are considering taking out a loan, knowing your FICO score will help you get a clearer picture of what kind of interest rates you can expect. Even if your score is not perfect don’t forget that a lender or a bank will also look at your current income, employment history, and other factors before deciding anything.
Whether you are currently concerned about your scores or not, we recommend you find a financial advisor and talk about this. Understand how you can improve them as you may be needing them later in life.