What Is a FICO Score? Do FICO Scores Really Matter?

Your FICO score is a three-digit number based on the info in your credit report. Learn what your FICO score is, why it matters, and how it’s calculated.

By Carla Fried | American Express Credit Intel Freelance Contributor

5 Min Read | June 14, 2021 in Credit Score



A FICO score can range between 300 and 850. A score above 800 is considered “exceptional.”

FICO scores are calculated based on information on file in your credit report.

Paying your bills on time and not using too much of your available credit are good ways to build an excellent FICO credit score.

A FICO credit score is the most popular system credit card issuers and lenders use to get a quick sense of whether you are responsible with money. It’s a three-digit number calculated off the information in your credit reports. If you want to borrow money to buy a car or a home, your FICO score matters – a lot. It plays a role in whether you get approved, the amount of the loan you’re offered, and the interest rate you’ll pay. A solid FICO credit score is also typically needed to qualify for a credit card.

Getting up to speed on the ins and outs of what the FICO score measures and using that knowledge to foster responsible credit use can earn you an excellent FICO credit score and help you save money over the years. First things first: FICO is a riff on Fair Isaac Corporation, the company that created the scoring system decades ago. If you have a solid FICO score, it’s likely you will also do well under the other major credit scoring system, VantageScore.


Why Your FICO Credit Score Matters

To understand why FICO credit scores matter so much, put yourself in a credit card issuer’s or lender’s shoes. Every time you use a credit card, you’re essentially asking the card issuer to loan you money to make the purchase. Ideally, you pay it back when your credit card statement arrives to avoid interest charges. But you can also opt to pay only a portion of your credit card balance each month, which means the credit card issuer is trusting you to pay off the balance – and interest – over time.

A mortgage for a home purchase or a loan to buy a car is an even bigger ask. The lender is advancing a lot of money to help you get that car or home, while trusting your ability to handle repayment on a monthly schedule that can run as long as 30 years.

Enter the FICO credit score. It’s a key factor that businesses check to get a sense of your financial responsibility and credit habits. As such, it influences the terms of the debt they offer. For instance, when you apply for a new credit card, your FICO score plays a role in setting the annual percentage rate (APR) you will owe on unpaid balances. In general, the higher your FICO score, the lower your APR.

FICO credit scores range from 300 to 850. A FICO score of at least 740 is a signal to businesses that you’re likely to pay back loans on time. A score of 800 or higher, which FICO calls “exceptional,” suggests you’re a very low risk.


How FICO Calculates Credit Scores

There are three major credit reporting bureaus: Experian, Equifax, and TransUnion. Each credit bureau tracks your credit card and loan repayment history, how much debt you have, and other financial identifiers, such as any accounts sent to a collection agency or any bankruptcy filings in the past seven to 10 years.

The data in your credit report is fed into FICO’s algorithm, which calculates your three-digit score. You actually have three basic FICO credit scores: one based on each agency’s credit report for you. If you’re applying for a credit card, the issuer might collect one FICO credit score. For a mortgage, it’s typical for a lender to collect all three FICO credit scores.

Anyone can access their three general credit scores through www.annualcreditreport.com.1 FICO also computes specialized scores for credit card issuers, car lenders, and mortgage lenders. For more on specialized scores, read “Different Types of Credit Scores.”

In theory your FICO credit scores should all be very similar, but it’s important to check your credit reports periodically to make sure each one is up-to-date and doesn’t include any mistakes. Checking your credit report or subscribing to a credit monitoring service can also help you keep an eye out for identity theft. Read “How Often Should You Check Your Credit Report & Score?” and “How to Dispute Your Credit Report at All 3 Bureaus.”

Did you know? As an added security measure to help protect against fraud, American Express reports a reference number to credit bureaus – instead of your actual account number.


What Matters in FICO’s Algorithm 

Your FICO score is based on five main elements of varying weight:2

  • 35%: Payment habits – your track record in making timely payments.
  • 30%: Credit utilization – how much of your total available credit you’re using right now.
  • 15%: Credit history – how long you’ve had credit accounts.
  • 10%: Debt mix – the different types of credit you have, including credit cards, auto loans, personal loans, and mortgages.
  • 10%: Credit inquiries – recent applications for new loans or credit cards that trigger a “hard inquiry.”

Because of their high weighting, your payment habits and credit utilization are what move the scoring needle most. A good way to make sure your bills are paid on time is to sign up for automatic bill pay. Regarding credit utilization, it’s a good idea to keep your outstanding balances to no more than 30% of your total available credit – and the lower the percentage, the better. To learn more, read “What Affects Your Credit Score?


The Takeaway

A reality of financial life is that your FICO credit score matters plenty. Businesses use it to decide how likely you are to repay money you owe. A solid FICO credit score will likely help you get the green light for a new loan or credit card and play a role in the terms of the deal. Paying bills on time and not using too much of your available credit are key steps to building an excellent FICO credit score. 

Carla Fried

Carla Fried is a freelance journalist who has spent her entire career specializing in personal finance. Her work has appeared in The New York Times, Money, CNBC.com, and Consumer Reports, among many other media outlets.


All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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