Stock Market 101

What Is a FICO Score?

Your credit score is a 3-digit number that lenders use to decide whether to loan you money and at what interest rate. Understanding it can save you tens of thousands of dollars over your lifetime.

FICO stands for Fair Isaac Corporation — the company that created the most widely-used credit scoring model. Your FICO score ranges from 300 to 850. Higher is better. 90% of top lenders use FICO scores when making lending decisions.

You actually have multiple FICO scores — one from each of the three major credit bureaus (Equifax, Experian, TransUnion). They're usually similar but can vary based on which bureau a lender reports to.

Score Range	Rating	What It Means
800-850	Exceptional	Best rates on everything
740-799	Very Good	Near-best rates
670-739	Good	Most lenders approve you
580-669	Fair	Higher rates, fewer options
300-579	Poor	Likely denied or subprime rates

The 5 Factors That Make Up Your Score

FICO calculates your score using exactly five factors, in order of how much they matter:

Payment History (35%) — Do you pay on time? This is the single biggest factor. Even one missed payment can drop your score 50-100 points. Tip: set up autopay for at least the minimum on every account.
Credit Utilization (30%) — How much of your available credit are you using? Keep it under 30%, ideally under 10%. Tip: pay your balance before the statement closing date, not just the due date.
Length of Credit History (15%) — How long have your accounts been open? Older accounts are better. Tip: keep old accounts open even if you rarely use them.
Credit Mix (10%) — Do you have a mix of credit types — credit cards, auto loans, mortgage? Tip: don't open accounts just for the mix; let this develop naturally.
New Credit / Hard Inquiries (10%) — Every time you apply for credit, a hard inquiry is added. Tip: rate-shop for mortgages/auto loans within 14-45 days — multiple inquiries count as one.

Hard vs. Soft Inquiries

Hard inquiries (hurt your score): applying for a credit card, applying for a mortgage or auto loan, requesting a credit limit increase, private student loan applications. Typically drops score 5-10 points and stays on your report 2 years.

Soft inquiries (no impact): checking your own credit score, pre-qualification checks, employer background checks, insurance quote inquiries. Zero effect on your score — check freely.

Why this actually matters in dollars: on a $300,000 mortgage over 30 years, a borrower with a 620 score might get a 7.8% rate (~$2,154/month). A borrower with a 760 score gets 6.5% (~$1,896/month). That's a $258/month difference — or $92,880 over the life of the loan. Your credit score is not a vanity number.

FICO vs VantageScore

Feature	FICO Score	VantageScore
Score range	300-850	300-850 (in its current version)
Used by lenders	Used in about 90% of lending decisions	Growing in use, but still less common for major lending decisions than FICO
Where you'll see it	Often shown through bank/card issuer apps and paid credit monitoring	Commonly shown on free services like Credit Karma

The two scores use similar underlying factors but weight them somewhat differently, so it's normal to see a modest gap between your FICO and VantageScore at the same point in time.

How Long Negative Items Stay on Your Report

Item	Time on Report
Late payment	7 years from the date of the missed payment
Collections account	7 years from the original delinquency date
Chapter 7 bankruptcy	10 years from the filing date
Chapter 13 bankruptcy	7 years from the filing date
Hard inquiry	2 years, though impact on your score typically fades well before then

Negative items generally hurt less over time even before they fall off completely, especially if they're followed by a consistent record of on-time payments.

How to Actually Improve a Low Score

Fix payment history first. Set every account to at least minimum autopay — this single factor carries the most weight, and consistency matters more than any other single action.
Bring utilization down. Paying down revolving balances, or requesting a credit limit increase without adding new spending, both lower your utilization ratio quickly.
Dispute any errors. Pull your reports from all three bureaus at AnnualCreditReport.com and dispute anything inaccurate — errors are more common than most people expect.
Avoid new hard inquiries in the short term. Hold off on new credit applications while rebuilding, since each one has a small, temporary negative effect.
Be patient with derogatory marks. Their negative impact fades over time even before the 7-10 year mark, so the score typically recovers faster than the removal date suggests.

Credit Score Dos & Don'ts

Do: pay every bill on time (automate it), keep card balances below 10% of the limit, check your report free at AnnualCreditReport.com, dispute errors immediately, and consider becoming an authorized user on a family member's old account.

Avoid: closing your oldest credit card, applying for multiple cards in a short period, maxing out a card even if you pay it off monthly, ignoring a collections notice, and co-signing a loan unless you're ready to own that debt.

Key Takeaways

Payment history (35%) and utilization (30%) make up 65% of your score — focus here first.
Your FICO score affects mortgage rates dramatically: a 620 vs 760 score on a $300K loan can cost $80,000+ extra in interest over 30 years.
You can check your score for free via your bank app, Credit Karma, or Experian — no hard inquiry needed.
Negative items (missed payments, collections) fall off your report after 7 years. Bankruptcies after 10.
FICO and VantageScore are the two major scoring models — expect a modest, normal gap between them.

Frequently Asked Questions

Why is my score different across Equifax, Experian, and TransUnion?

Not every lender reports to all three bureaus, and each bureau may have slightly different information on file for you at any given time. This typically results in scores that are close but not identical across the three.

Will checking my own credit score hurt it?

No — checking your own score or report is a soft inquiry and has zero effect on your score. Only hard inquiries from actual credit applications can cause a small, temporary dip.

How quickly can my score improve?

Some factors, like utilization, can improve within a single billing cycle once a balance is paid down. Others, like payment history and length of credit history, only improve gradually over months and years of consistent behavior.

Does closing a credit card hurt my score?

It can, in two ways — it reduces your total available credit (raising your utilization ratio on remaining cards) and, if it's an older account, can eventually lower the average age of your credit history once it drops off your report.

Is FICO or VantageScore the "real" score lenders use?

FICO is used in the large majority of actual lending decisions, especially for mortgages and auto loans, though VantageScore has grown in popularity and is what many free monitoring apps display. Neither is more "official" than the other — they're just different models, and it's worth knowing which one a specific app or lender is showing you.