What is a FICO Score and why is it important?

The three-digit number known as your credit score is key to determining which financial products, including credit cards and personal loans, you’ll qualify for. The three main credit bureaus — TransUnion, Experian and Equifax — use two credit scoring models, VantageScore and FICO® Score.

Thirty years ago, Fair Isaac Corporation, a data analytics company more commonly known as FICO, saw the need for a simple, yet effective way to help the credit bureaus interpret consumers' credit reports. This led FICO to create an industry-standard for scoring creditworthiness that continues to be the most widely used scoring model.

Here’s what you need to know about FICO Scores, including the factors that determine your credit score and where you can get your free FICO credit score.

The FICO credit scoring model looks at five key factors and weighs each differently:

1. Payment history (35%): Whether you’ve paid past credit accounts on time
2. Amounts owed (30%): The total amount of credit and loans you’re using compared to your total credit limit, also known as your utilization rate
3. Length of credit history (15%): The length of time you’ve had credit
4. New credit (10%): How often you apply for and open new accounts
5. Credit mix (10%): The variety of credit products you have, including credit cards, installment loans, finance company accounts, mortgage loans and so on

FICO Scores can be broken up into five ranges:

• Very poor: 300 to 579
• Fair: 580 to 669
• Good: 670 to 739
• Very good: 740 to 799
• Exceptional: 800 to 850

FICO has over a dozen credit score versions that are broken up into base scores and industry-specific scores. Base scores show lenders the likelihood you’ll repay any credit obligation, whether it’s a credit card bill or loan payment. Industry-specific scores represent the odds you’ll repay a specific loan, such as an auto loan or mortgage.

Here’s a breakdown of the common FICO® Score versions and what they’re used for:

• Most widely used: FICO Score 8
• Credit card decisions: FICO Bankcard Scores 2, 4, 5 and 8; FICO Score 3
• Auto lending: FICO Auto Scores 2, 4, 5 and 8
• Mortgage lending: FICO Scores 2, 4 and 5
• Newly released versions (which aren’t widely used yet): FICO Score 9, FICO Auto Score 9, FICO Bankcard Score 9 and FICO Score 10

VantageScore is the other major credit scoring model. However, lenders have a clear preference for FICO since its model is used in over 90% of U.S. lending decisions.

While FICO is the most widely used scoring model, it has some similarities to VantageScore. Both set score ranges from 300 to 850 and rank payment history as the most important factor in determining your score. However, FICO and VantageScore differ in exactly how they weigh and rank several other factors, such as the length of your credit history.

If you plan on applying for a new financial product, make sure to check your FICO Score since there’s a good chance lenders will use it to determine your creditworthiness.

There are numerous ways you can access your free FICO credit score, such as through your credit card issuer or bank.

Here are a some card issuers that provide free FICO Scores:

• American Express credit cards
• Bank of America credit cards
• Citi credit cards

There are also online resources that provide free access to anyone — regardless if you’re a cardholder or not, including:

• *Experian Boost™
• Discover Credit Scorecard

Establishing a good credit score isn't a complex process, but it's vital for your overall financial picture. When you have a good or excellent credit score, you'll have an easier time being approved for renting an apartment, you'll get better rates on car and homeowner's insurance and it's cheaper to borrow money when you need it. 

Many of the best credit cards require good or excellent credit. If you want to benefit from competitive rewards, annual statement credits, luxury travel perks, 0% APR periods and more, you'll need at least a good credit score. And if you have an excellent credit score, you can maximize approval odds.

For instance, if you're looking to earn generous rewards on groceries and dining out, the American Express® Gold Card offers 4X Membership Rewards® points when you dine at restaurants and shop at U.S. supermarkets (on up to $25,000 per year in purchases, then 1X). Terms apply. But you'll need good or excellent credit to be approved for the Amex Gold, which CNBC Select named the best rewards card of 2020.

The first step to establishing good credit it to know your score. With so many apps and online resources available, it's easier than ever to stay on top of this important piece of your financial health.

*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.