What Does FICO Stand For? The Answer Will Help Your Finances

Susan Shain

Susan Shain | Blog

Aug 29, 2018 | Updated Dec 19, 2018

So you’ve heard the word “FICO” before.

Maybe from your mom, who’s always telling you to “stay on top of your FICO scores.”

Or maybe from your prospective landlord, who wants to “check your FICO” before he’ll let you live in his apartment.

But what does FICO stand for? And why is it so important?

What Does FICO Stand For?

Despite sounding mysterious, the acronym’s origins are pretty straightforward: FICO stands for Fair Isaac Corporation, a financial services company founded in 1956 by an engineer named Bill Fair and a mathematician named Earl Isaac.

The pair wanted to use data to help businesses make better decisions. It started using predictive analytics to create “credit scores” that would help businesses determine how much credit risk a potential borrower posed.

In 1958, it introduced its first credit scoring system, and in the late ’80s, it rolled out FICO credit scores.

What Are FICO Scores?

FICO isn’t a credit reporting agency. Instead, it uses reports from the three major credit bureaus — Equifax, Experian, and TransUnion — to determine your FICO credit scores.

Lenders, in turn, use these scores to assess your level of credit risk: The higher your score, the less likely you are to default on a loan.

So, if your FICO scores are high, lenders will be eager to give you money, and will offer attractive interest rates. If your scores are low, they’ll be more wary, and may deny your application — or offer high interest rates to hedge their risk.

Though people often refer to “your FICO score” in the singular, you actually have dozens. Each is based on a single credit report from one of the credit bureaus.

They vary based on:

  • Credit bureau: Since the credit bureaus all have slightly different information about you, and each score is based on just one bureau’s report,  your scores may vary depending on which is used.
  • Type of loan: Different FICO scoring models are used for different loans; i.e. the FICO score a car dealership sees may be different from the FICO score a mortgage lender does.
  • Scoring models: Just like software, FICO scores get updated. FICO Score 9 is the most recent, but many lenders still use version 8.

Though we’re focused on FICO scores for this article, they’re not the only credit score around. The three major credit bureaus introduced “VantageScore” back in 2006.

The main difference between FICO and VantageScore is the latter can be generated using just a month or two of credit history. With FICO scores, you usually need at least six months of history to generate a score.

Most lenders will check your FICO scores rather than VantageScores. But since they use similar credit scoring models, maintaining good FICO scores will also lead to good VantageScores.

FICO is rolling out a new type of score in 2019 called UltraFICO. This score takes into account data provided by consumers, like bank account information. Its aim is to help people with bad or limited credit histories boost their scores.

What’s In Your FICO Scores

Your FICO scores aren’t set in stone. They change frequently, even from month to month, depending on your credit behavior.

Here’s a breakdown of what affects them:

What’s In Your Credit Score?

This chart shows the criteria used to create FICO scores and their relative importance in your credit score.

  • Payment history: Have you paid your past bills on time?
  • Amounts owed: How much of your available credit are you using? What is your credit utilization?
  • Length of credit history: How long have your accounts been open? Have you used them recently? (This is why we recommend keeping unused cards open.)
  • Credit mix: Do you have experience with both revolving debt, like a credit card, and installment debt, like an auto loan?
  • New credit: How many accounts have you opened recently? Opening several lines of credit in a short amount of time can say “credit risk!” to lenders.

Never used credit before? Then you probably don’t have FICO scores. FICO typically requires you to have six months of payment history before it’ll be able to generate your scores. Here’s how to build your credit with credit cards.

What’s a Good FICO Score?

Here are the FICO score ranges for FICO score 8, according to myFICO.

FICO Score Range Credit Rating
579 or lower Poor
580–669 Fair
670–739 Good
740–799 Very Good
800 or above Exceptional

In general, once you get into the upper end of the “Good” range, you can expect to be approved for most offers you apply for, although you won’t always get the best possible rates. While there isn’t a special prize for having credit scores above 800 or a perfect score of 850, a high score can provide a nice cushion in case your score falls.

You should also be aware that credit card issuers base approval decisions on more than just one of your credit scores. Even if you have great FICO scores, for example, a bank may deny you for certain items on your credit reports or your income.

Where to Check Your FICO Scores for Free

Now that you know what FICO stands for, you’re probably eager to see your scores.

The easiest way is through the Discover Credit Scorecard. This tool is available to anyone, whether you have a Discover credit card or not. Discover cardholders will see FICO scores based on their TransUnion reports, while non-cardholders will see scores based on their Experian reports.

For several other strategies, read this post on getting your FICO scores for free.

You should also take the time to check your credit reports. Since FICO bases your scores on these reports, it’s vital they’re correct. If you find any mistakes or errors, contact the credit bureau immediately.

Why Your FICO Scores Matter

Though credit scores might not seem like an exciting topic, they’re extraordinarily important for your financial well-being.

And FICO scores, in particular, matter: 90% of “top lenders” use them to make lending decisions.

Those lending decisions go beyond whether or not you’ll receive a shiny new credit card. They affect all areas of your life, including your ability to get a job or an apartment, and the interest rates you’ll pay on an auto loan or mortgage.

So it’s vital you stay on top of your scores. If you want to improve your FICO scores, here are a few steps you should follow:

  • Pay your bills on time: This is the cardinal rule of credit. Don’t pay late, and don’t miss payments. We recommend putting your bills on autopay so you reduce the inevitability of human error.
  • Reduce your credit utilization: Part of your credit scores is how much of your available credit you’re using. Try to keep your credit card balances low or nonexistent. You can also ask for a higher credit limit from your credit card company.
  • Keep old cards open: If your card is paid off and has no annual fee, don’t close it. Keep it open to maintain your length of credit history and reduce your utilization, even if you don’t use it anymore.

When you have excellent FICO scores, you can snag the best interest rates and the best credit cards. When you have low scores, you may have trouble getting a landlord to lease you an apartment.

So, if you think about it, FICO stands for much more than just a credit score — it stands for financial opportunity.

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