A Good Credit Score

A Good Credit Score

FICO Score Facts, Stats & Mysteries

Your FICO score can affect a lot of aspects of your life: everything from your chance having a decent retirement fund, to ability to get a job or find a place to live. Until a couple of years ago there wasn’t much known about the magical FICO number, but now information and mis-information is everywhere. Here we present an overview of the credit scoring, what the numbers mean, and how they are used.

The FICO score was developed by the Fair Isaac Company with a simple goal in mind. To be able to predict, using mathematical formulas, whether a given applicant was a good risk to lend money to.

The FICO scoring formula takes in many variables and measures those variables against know data (loans that have been made and either successfully paid back or resulted in default and everything in between) and then calculates which factors have a higher predictive weight for future repayment success.

For example, someone who has recently had a loan and paid it back in full without missing a payment is considered very likely to repay their next loan in the same manner. Therefore “recent loan repaid in full with zero missed payments” is a strong ranking factor and it given a higher FICO score, which translates to the best credit card deal since the likely cost to the bank or lender is lower.

The Big 3 Credit Reporting Bureaus

While FICO scores were created and devised by the Fair Isaac Company (FICO), they are used by all three of the major credit reporting bureaus: TransUnion, Experian & equifax-report”>Equifax.

What is important to keep in mind is that the three credit bureaus are all in competition with each other, so as part of their battle to win your business (and the mortgage, loan and credit card companies that consume FICO scores) they can and will do things like: change the rules for calculating scores, imply that their score is “different or better” than the others, and even create confusion over FICO score meanings. As a consumer, just be aware that credit or FICO scores are big business and the competition is no different than any other market.

What’s a Good FICO Score?

The following graph shows the range of possible FICO scores and the percentage of all credit scores. It shows that most people do in fact have pretty good credit and therefore qualify for a high credit limit:

FICO Credit Score Percent of People
With That Score
300 – 499 2%
500 – 549 5%
550 – 599 8%
600 – 649 12%
650 – 699 15%
700 – 749 18%
750 – 799 27%
800 – 850 13%

3 Important FICO Score Facts

#1. You have to actually have credit to establish a FICO score. Unlike in the law where you are innocent until proven guilty, when it comes to your FICO score, you will have a score of zero until you have some kind of active credit account, like a secured credit card, or even student loan debt for at least six months.
#2. A FICO score is not the only factor in that lenders use to evaluate your credit application. Mortgage lenders especially can take many factors into consideration including: home appraised value, stated income, your debt payment to income ratio and employment history.

#3. FICO scoring formulas are intentionally difficult to figure out. The complex mathematical formula that calculates your FICO score was designs for lenders and they don’t want it to be public knowledge. While enough information is available to be able to improve your score, they fear that if it was a completely transparent system, then it would lose its effectiveness as a predictor or risk of default on a loan. Keep this in mind if you experience credit trouble and someone from one of the credit repair companies is making promises of a repair plan that seem too good to be true.

The Practical Benefits of a Good FICO Score

A 30-year fixed loan in which the interest rate does not change during the entire term of the loan.

FICO Score APR Monthly Payment Total Interest Paid
720-850 5.882 % $592 $113,115
700-719 6.007 % $600 $116,000
675-699 6.544 % $635 $128,587
620-674 7.694 % $713 $156,517
560-619 12.018 % $1,030 $270,799
500-559 12.985 % $1,105 $297,810


Loan Rates by FICO Scores

From this chart you can see that having a FICO score of less than 620 can be very expensive as the hike in interest rates incurred at that level starts to be extreme.

Other articles in this series which drill into low FICO scores and what you can do about them are Credit Rate Score, My FICO Score, Free FICO Scores, and Credit FICO Score all will help to understand what is a FICO score and how to avoid the credit trouble that can arise from neglecting or failing to monitor your FICO score.

The FICO Score Beyond Loans

Much to the distress of privacy and consumer activists more and more non credit decisions are being based on an individual’s FICO score. It is common knowledge that having a low FICO score can cost you hundreds of thousands of dollars over your lifetime, but here’s two other important areas where FICO score can be a determining factor:

  • Job Applications: more and more employers are factoring credit or FICO scores into the hiring decision. It makes sense, if you think of it, as FICO score can be a good indicator of a person’s sense of responsibility level.
  • Insurance Cost: FICO scores are routinely used to determine rates for all types of insurance including private mortgage insurance and others. FICO score may even be referred to as an insurance score.
  • Rental or Leasing: Landlords may ask permission to pull a credit inquiry from one of the major credit reporting agencies to use in their decision for offering an apartment or home to a tenant.

Overall your FICO score is a very important number in your financial life. It is worth spending some time and effort to understand the financial decisions that you are making, how they affect your FICO score and how the resulting FICO score can affect many other things in your life.



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