FICO Scores vs. Credit Scores: What’s The Difference?
Most of us have been there at one time or another: We feel our heart rate speed up a bit as we wait for the page to our new credit score to load, or we sit across the desk from a lender and wait for their verdict regarding how high our interest rate may be.
Credit scores, after all, have the ability to dictate our financial reality, although it can be difficult to pinpoint how we look to lenders when there is more than one score floating around out there.
One thing you can rely on, however, is that many consumers and lenders build their choices around the all-purpose score known as a FICO score. The only question left, then, is how this score varies from a typical credit score.
What Are Credit Scores?
A credit score is a calculated number used to quantify your credit risk, or how likely you are to efficiently pay back a loan to your lender; the higher your score, the more likely you appear to be able to pay back a loan in an efficient and timely manner. This score can also affect your interest rate, as well as other terms of the financial agreement you enter into.
“Having a high score can benefit you in many ways,” as explained on the government’s official information and services website. “It can make it easier for you to get a loan, rent an apartment, or lower your insurance rate.”
Credit scores have also been traditionally determined and reported by three major credit reporting agencies (CRAs): Equifax, Experian, and TransUnion.
What Is FICO?
FICO, created by the Fair Isaac Corporation, is meant to be used as a generalized score for both lenders and borrowers alike for the same purposes as a credit score.
Today, many lenders are increasingly referring to FICO to determine the status of a potential borrower’s credit health. In fact, according to the Consumer Financial Protection Bureau (CFPB), over 90 percent of lenders bought FICO scores to make decisions about consumers in 2010.
Finally, FICO scores are generated based on the information in your credit report and can vary by as much as 100 points in comparison to other CRA’s credit scores.
What’s The Difference Between A FICO Score and A Credit Score?
“A consumer’s generic FICO score can vary from one CRA to the next, for at least two reasons,” according to Consumer Reports. “First, each CRA may have different information in the credit report used as a basis for calculating the consumer’s credit score. Second, FICO uses a different algorithm for each CRA when calculating the consumer’s score.”
Generally, your FICO score will almost never be identical to another CRA’s score. For example, where the FICO score uses a sliding range between 300 and 850, the Equifax Credit Score uses a range of 280 to 850 — and that’s before taking into account the difference in credit algorithms.
One thing all credit and FICO scores do have in common, however? With time and effort, one can always improve their score and rejuvenate their financial future.
Finally, if you’re experiencing difficulties in managing an exorbitant amount of debt and — subsequently — decreasing your credit score, it’s important to recognize how bankruptcy can provide you with lasting relief. To learn more about how bankruptcy can wipe your slate clean and even stop debt collector harassment, contact Dolaghan Law today by calling (904) 354-4935! You always have the opportunity to take control of both your finances and your life, and with Dolaghan Law, you’re never alone.