What is the difference between a credit score and a FICO score? Hey guys, this is Dash and
this is Mind Over Finance. We're going to keep this video short and sweet today. I'm
no credit expert, but this is a question that I had for myself, so I thought we'd do some
digging and hopefully it'll help somebody else out there to understand the difference
too.
First, let's take a look at the definition of a credit score. From Investopedia, a credit
score is a number ranging from 300 to 850 that depicts a consumer's creditworthiness.
The higher the credit score, the more attractive the borrower. A credit score is based on credit
history. Number of opening accounts, total levels of debt, and repayment history. Lenders
use credit scores to evaluate the probability that an individual will repay loans in a timely
manner. So essentially, your credit score is this number that lets lenders know to what
extent they can trust you to pay back the money that they lend you. And while it may
not be a perfect system, how you've handled your debts in the past are pretty decent indicator
of how you're going to handle new loans, at least in lender's eyes. But it makes a lot
of sense.
And next let's look at the definition of a FICO score. Also from Investopedia, a FICO
score is a type of credit score created by the Fair Isaac Corporation. Lenders use borrowers'
FICO scores along with other details on borrowers' credit reports to assess credit risk and determine
whether to extend credit. FICO scores take into account various factors in five areas
to determine creditworthiness. Payment history, current level of indebtedness, types of credit
used, length of credit history, and new credit accounts. And your FICO score is also a number
from 300 to 850 that lets lenders know how trustworthy you are or how creditworthy you
are. So if your credit score is this number from 300 to 850 that tells how creditworthy
you are, and your FICO score is this number from 300 to 850 that says how creditworthy
you are, what the hell's the difference?
So I went hunting around to do my research and what I found is there no really clear
line that tells you the difference between your FICO score and your credit score. The
biggest difference I see is in how they're calculated. So your credit score is going
to come from one of the three major credit bureaus, that's Equifax, Experian, and TransUnion.
And a good way to remember those is the acronym EET. And FICO, the Fair Isaac Company isn't
one of the official bureaus, but the Fair Isaac Company is partnered in some way or
connected in some way to each of those bureaus. And according to their website, back in 1991,
the FICO credit risk scores were made available to all of the major credit bureaus. So I think
back then, back in '91, that's when the FICO score, the FICO analytics, became much more
valued, much more trusted because I remember back in the day hearing about Beacon scores
and I don't really hear much about them anymore.
I'm sure they're probably still a thing, but that's just another model. So the big difference
between your FICO score and your credit score is just how they're calculated. They're both
two different models that calculate a snapshot score of your credit history at a single point
in time. And just a quick note about FICO scores. So when I went to my fico.com to pull
my own FICO score, I was expecting to see one number and I thought maybe, "Oh, this
will be my FICO score," but that's not what I got. I got several different versions of
my three scores from the different credit bureaus, because FICO is this analytics company.
I think it's just kind of partnered up with each of these three credit bureaus and it
gives its version of your credit score based on the numbers from each one of those agencies.
But to be honest, I don't really think you need to worry about the difference between
your credit score and FICO score. They're related. I don't know anybody who's like,
"My credit score is bad, but my FICO score is good." No, if your credit is bad, your
FICO score is bad. Believe me, I know firsthand. I follow the whole middle score approach where
you just take the middle score from the three bureaus because it keeps you from having to
do all that worrying and fussing. The numbers are going to be slightly different from bureau
to bureau, but by and large, if you've got good credit, you've got good credit.
I know today's video was a little bit short, but hopefully, you still got something from
it. This is a question I definitely had, and hopefully you're a little bit clearer on the
difference between your FICO score and your credit score. And I'll catch you in the next
video. Peace.