The Complete Guide to Understanding Your FICO Credit Score

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FICO credit score

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Imagine a time before credit scores, when any variety of random factors, no matter how large or small, could lead to your approval or denial for a loan.

Before the late 1980s, there was no unilateral mechanism from which you would be judged as a borrower. While that might sound nice – scoring isn’t always fun, after all – what that actually meant was there was a great deal of room for discrimination.

One company decided to put an end to lending discrimination by creating a scoring system that would only show what mattered: your behaviors as a borrower, not what you look like.

This is the story of how the FICO credit score was created, why you should care, and how you can manage your score.

What is the FICO credit score?

The Fair Isaac Corporation created the FICO credit score in 1989 to help people gain fair access to credit. Fair Isaac created this score to replace “hunches” with calculations. Here’s the problem that led to this creation, in the company’s own words:

“In the days before credit scoring, people were often denied credit because there was no unbiased structure for evaluating them objectively. The system was not fair, fact-based or consistent.”

But once the score was developed, that all changed. “[It] took prejudice out of the equation, literally. The score’s criteria for evaluating potential borrowers are focused solely on factors related to a person’s ability to repay a loan, rather than one’s ZIP code or social status.”

As for the fair claim, FICO walks the walk by not including demographics like race, gender, marital status, income, employer, or other factors that have more to do with you as a person and nothing to do with you as a borrower.

Now it is mandated by law not to weigh these factors when determining a borrower’s eligibility. The Equal Credit Opportunity Act states a creditor “shall not inquire about race, color, religion, national origin, or sex of an applicant or any other person in connection with a credit transaction, except as provided in paragraphs (b)(1) and (b)(2) of this section.”

As for rules (b)(1) and (b)(2), they refer to the voluntary disclosure of such information to the creditor, as well as the optional addition of a title such as Ms., Miss, Mr. or Mrs. on an application.

And with that, unbiased lending became an industry standard. So when you think about how frustrated you are by your credit score (as we all are sometimes), remember that it is in many ways there to help you.

How do lenders use FICO scores?

FICO isn’t the only credit score on the block anymore, but it is the most popular.

In fact, FICO has sold 100 billion of its scores – the most in the world. And FICO scores are used in 90 percent of all lending decisions in the United States.

Needless to say, FICO is leading the pack in credit scores. But the type of score your lender sees will vary based on the type of credit you’re applying for. That’s because there are base FICO scores and industry-specific FICO scores. Here’s how myFICO explains the difference:

Base FICO® Scores […] are designed to predict the likelihood of not paying as agreed in the future on any credit obligation, whether it’s a mortgage, credit card, student loan, or other credit product. Industry-specific FICO® Scores are designed to assess the likelihood of not paying as agreed on a specific type of credit obligation – car loans or credit cards, for example.

Lenders might choose to use industry-specific FICO scores because they “provide lenders a further-refined credit risk assessment tailored to the type of credit the consumer is seeking.” For example, a car dealership might use FICO Auto Scores, while credit card issuers might use FICO Score 8.

Not only are there different types of FICO scores, there are also different versions of each score. So even if a new version is released today, that doesn’t mean the lender you’re working with is using it.

That’s why it’s important to avoid getting hung up on finding the “perfect” score. Instead, aim to reach the highest credit score range. There’s no reason to strive for a perfect number when you know that the three digit number your lender sees will not always be the same as what you see.

Get the most out of your FICO score

Now let’s talk about how you can make sense of your FICO credit score. Here’s what you need to know.

1. Get your free FICO credit score

First of all, you need to be able to see your credit score.

There are a few ways to get your free FICO credit score. By now, you might even find that you can get your free FICO credit score from your current bank or credit card issuer.

This access is a fairly new development and one you should take advantage of. Years ago it was much more difficult to get a free FICO credit score. But the push towards more financial institution transparency for consumers and the rise in financial literacy has made changes on that front.

2. Know your FICO score range

When you get your score, don’t become fixated on the number. Remember, we all have many FICO scores. Instead, see what range you fall into. Here is a breakdown of the ranges:

  • Exceptional: 800+
  • Very Good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 579 and lower

If you get a few versions of your free FICO credit score, you might find you fall into different ranges. For example, one score might be 741, which puts you at the bottom of “very good.” Another could be 739, which puts you at the top of “good.”

This is nothing to worry about. As you can see, only three points separate the “good” and “very good” range in this example. That means making even small improvements in the score could bump it up to the better range.

3. Understand the factors of FICO scores

We already discussed certain things that don’t factor into your FICO scores, but it’s important to know what things do factor in. Here’s a condensed version:

  • Payment history = 35 percent
  • Amount of debt = 30 percent
  • Length of credit history = 15 percent
  • New credit = 10 percent
  • Credit mix = 10 percent

FICO Score Factors,

Most of these are self-explanatory, but here’s an easy way to remember how FICO scores work.

  • Most of your score will be determined by your payment history, which means paying on time will help you and paying late will greatly hurt you.
  • The amount of debt you have, specifically revolving debt, is important. Keep your balances as low as possible to have a high score.
  • The longer your history with your lenders, the better your score.
  • Applying for too many new loans and/or lines of credit can hurt you – but this makes up a small portion of your score. Apply within reason and only when you need the new credit and don’t be afraid to rate shop.
  • The more of a mixture of types of credit you have, the more proof of your credit behavior lenders have. So if you have a credit card and student loans, mortgage, or auto loan, you have a good mix and your score will benefit from that.

4. Work to improve your FICO scores

There’s not a lot of good this information can do if you are powerless to changing it. Luckily, you’re not.

Everyone has the ability to improve their FICO scores – and it’s important to do so. Even if your score is good today, you’ll still need to maintain your status lest it should fall down a few notches without you even realizing it.

The best way to improve your score or maintain a good score is to follow a few best practices:

  • Pay every bill on time, credit or otherwise.
  • Maintain a 30 percent or lower credit utilization on your revolving debt.
  • Keep old accounts open.

There’s always more you can do to improve your score, but these three best practices will take you a long way. Combine them with a practice of regularly reviewing your credit report and disputing any errors if they come up so you can be sure you’ll have your best range.

Remember, you can get your credit report for free from each of the three credit reporting bureaus each year at Keep in mind that your credit score will not be listed on your credit report.

Why you should care about your FICO scores

We’ve covered a lot of ground on the FICO credit score. But if you’re wondering why you should care, listen up.

A low FICO credit score can prevent you from credit approval. And if you somehow manage to be approved, a low score can cost you money. CBS News uncovered just how much:

“A 30-year old with poor credit is likely to pay a quarter-million dollars more in interest payments over her lifetime (assuming an $18,000 car loan, $5,000 in credit card debts and a $400,000 mortgage) than a similar person with a pristine score.”

In other words, the person with poor credit will pay $250,000 in interest payments alone on her debt. In many towns, that’s the price of a house. Just in interest.

But what about decent credit? CBS News explains if your credit is merely good, not excellent, “you’ll pay about $30,000 more over your lifetime than that individual with excellent credit.” That $30,000 in interest could buy you a new car.

Remember, credit scores help you gain access to credit without being unfairly discriminated against. But they also help lenders understand your likelihood of repaying a loan.

Therefore, if your credit score is low, that likelihood looks low. So lenders will either deny your application or charge you a higher interest rate. That helps them mitigate against future losses in case you default.

It literally pays to know your FICO credit score. Find your free FICO credit score, work to get it to the highest range, and maintain your good status when you get it. That way your score won’t stand in the way of your financial goals – it will help you achieve them.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderAPR RangeLoan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 6.990% APR to 14.865% APR (with AutoPay). Variable rates from 6.255% APR to 12.555% APR (with AutoPay). SoFi rate ranges are current as of September 1, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.255% APR assumes current index rate derived from the 1-month LIBOR of 2.08% plus 4.425% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

    To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.See Consumer Licenses.
  2. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  3. SoFi Personal Loans are not available to residents of MS. Maximum interest rate on loans for residents of AK and WY is 9.99% APR, for residents of IL with loans over $40,000 is 8.99% APR, for residents of TX is 9.99% APR on terms greater than 5 years, for residents of CO, CT, HI, VA, SC is 11.99% APR, and for residents of ME is 12.24% APR. Personal loans not available to residents of MI who already have a student loan with SoFi. Personal Loans minimum loan amount is $5,000. Residents of AZ, MA, and NH have a minimum loan amount of $10,001. Residents of KY have a minimum loan amount of $15,001. Residents of PA have a minimum loan amount of $25,001. Variable rates not available to residents of AK, TX, VA, WY, or for residents of IL for loans greater than $40,000.
  4. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (

2 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.

3 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 4.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 4.99% APR loan, a borrower will need excellent credit on a loan of $15,000 with a term of 24 months, and qualify for at least two of the following discounts: (1) add a co-borrower who has sufficient income; (2) use at least fifty percent of the loan proceeds to directly pay off existing debt; or (3) show proof of having at least forty-thousand dollars in retirement savings – contact FreedomPlus for further details.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

5 Important Disclosures for LendingPoint.

LendingPoint Disclosures

  • Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates (“APR”) may vary based upon LendingPoint’s proprietary scoring and underwriting system’s review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 6% may apply depending upon your state of residence. Upon LendingPoint’s final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. LendingPoint makes loan offers from $2,000 to $25,000, at rates ranging from a low of 15.49% APR to a high of 34.49% APR, with terms from 24 to 48 months. The loan offer(s) shown reflect a 28 day payment cycle which is being offered as a courtesy as many of our customers are paid on a biweekly schedule and thus this may better align the loan payment dates with your actual income receipt schedule.

6 Important Disclosures for LendingClub.

LendingClub Disclosures

All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the website. All loans via LendingClub have a minimum repayment term of 36 months or longer.

7 Important Disclosures for Earnest.

Earnest Disclosures

  1. Earnest does not lend in Alabama, Delaware, Kentucky, Nevada, or Rhode Island.

8 Important Disclosures for Avant.

Avant Disclosures

* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.

** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

7.73% – 29.99%$1,000 - $50,000

Visit Upstart

6.26% – 14.87%1$5,000 - $100,000

Visit SoFi

6.99% – 35.97%*$1,000 - $50,000

Visit Upgrade

5.99% – 24.99%2$5,000 - $35,000

Visit Payoff

4.99% – 29.99%3$10,000 - $35,000

Visit FreedomPlus

5.99% – 18.99%4$5,000 - $50,000

Visit Citizens

15.49% – 34.49%5$2,000 - $25,000

Visit LendingPoint

6.16% – 35.89%6$1,000 - $40,000

Visit LendingClub

6.99% – 18.24%7$5,000 - $75,000

Visit Earnest

9.95% – 35.99%8$2,000 - $35,000

Visit Avant

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

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