What Is a FICO Credit Score, and Why Is It So Important?

You might not know this, but you have tons of credit scores … for a variety of reasons. For one thing, anyone with information about your credit history can create a formula to determine your creditworthiness. For instance, the three credit-scoring bureaus Equifax, TransUnion, and Experian all collect information about your activity on credit cards, mortgages, installment accounts, car loans, student loans, and the like. And they have all different proprietary formula that they apply to this information to generate a credit score.

Equifax offers something called an Equifax Credit Score. Experian offers both the PLUS score and the VantageScore. And TransUnion has its own credit score, too!

If all these names are confusing, here’s the important part: When deciding whether to extend a loan to you, your potential creditors want to know how risky you are. Currently, the formula they trust the most to determine your creditworthiness—and therefore your credit score—is called FICO. In fact, FICO is the score that is almost exclusively used by creditors, banks, and the like.

Created by an engineer and a mathematician, Bill Fair and Earl Isaac, FICO is the best-known and most widely used credit score model in the United States. So you can (and should) ignore all those other scores. They do not reflect the same score that your lender will see when pulling your credit report and credit score. So don’t spend your money on buying a score that isn’t a FICO score. The only thing these scores will do is paint an unrealistic picture of the loan terms you can expect.

In other words, FICO is the only credit score that matters.

But it’s a little more confusing.

Though all three of the bureaus have created their own formulas, they also apply FICO to the information they have on file about you. So you have three different FICO scores: One from Equifax, one from TransUnion, and one from Experian. Each of these three FICO scores is based on information the respective credit bureau keeps on file about you.

As a result, your three FICO credit scores might be different, depending on what information the credit bureaus have about you. For instance, if you have a credit card that doesn’t report to all of the three credit bureaus, your FICO score will be different among the three bureaus. On the other hand, if your information is identical at all three credit bureaus, each FICO score will be identical because the same formula is being applied to the same information.

So what do lenders do with these three FICO credit scores?

They ignore the highest score and the lowest score, and they base your loan terms on the middle score. If your Equifax score is 732, your Experian score is 693, and your TransUnion score is 692, they will toss out the high score (732) and the low score (692) and consider your loan terms based on your 693 Experian score.

Equifax  732

Experian 693

TransUnion  692

So if you want to qualify for a loan, or if you want to qualify for better terms on your existing loans/credit cards, you must follow the FICO model and demonstrate the behaviors that will boost your FICO score.

To learn your FICO score, visit www.720FICOscore.com, the only place you can buy all three FICO scores.