I Never Knew There Was A Difference
The terms “FICO score” and “credit score” are often used conversely. Although they may appear interchangeable, there are significant differences between FICO scores and credit scores. Understanding the differences between FICO scores and credit scores will help you cope with the world of loans and credit cards more effectively and it’s necessary to know the difference so that you can understand your financial standings.
All of the FICO scores are Credit scores, but not all Credit scores are FICO. Even not all FICO scores are the same.
Are you Confused? I am defenitely confused makes no sense to me!! Keep reading until the end; this article will clarify and you get the differences between a credit score and a FICO score.
First, have a glance at what both of these scores are:
A credit score ranges from 300-850 that lets lenders know to what extent they can trust you to pay back the money they lend you. The Fair Isaac Corporation invented the FICO score, a sort of credit score. Based on the borrower’s FICO score and other information on their credit report, lenders assess credit risk and decide whether or not to grant credit.
The terminology can be a bit confusing. A FICO score is a credit score subset that consists of any credit score evolved with using FICO.
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 trustworthy you are, so what is the difference?
The most significant difference is in how they are calculated.
Credit scores are calculated using statistical analysis of a person’s credit report, which credit agencies such as Experian, Equifax, and TransUnion keep. So your credit score will come from one of these three major Bureaus.
FICO the Fair Issac and Company isn’t one of the official bureaus, but it is partnered in some way or connected in some way to these bureaus. According to their website, back in 1991, the FICO scores were made available to all of the major credit bureaus.
A company like credit karma will issue a score based on the three bureaus ( transient, Experian, Equifax) they create their algorithms, on the other side of that you have the FICO score the fair Issac company they are the ones that own the algorithm that all the lending institutions will use to create your FICO score.
The methodology utilized by all three leading credit reporting agencies in the United States was devised by the Fair Isaac Corporation (FICO). The algorithm is kept a secret, but most people assume it is based on the debt-to-available-credit ratio. The available credit is a direct result of the income in most circumstances. After then, the score is adjusted.
In consonance with FICO, 90% of top lenders use FICO scores. FICO scores have multiple versions FICO 8, FICO 9, FICO 10, FICO 10T. You get a vast number of potentially varied credit scores when you multiply all of these versions by the three credit reporting bureaus.
So the big difference
between your credit score and the FICO score is the way they are calculated, and they both are two different models that estimate a snapshot score of your credit history at a single point in time.
Credit Score is a blanket term encompassing all scorecards and models used to assess credit risk. Customized (based on data from a single bank) or generic (based on data from numerous banks) credit ratings are available. These are referred to as ‘generic scores’ since they are not designed for a specific use case and instead evaluate payback risk for all credit products. FICO scores are FICO’s generic credit bureau scores. They only use credit bureau data, and all of the bureaus in the US have FICO scores due to rules. If you travel to other nations, you’ll notice that different credit bureaus have generic ratings that go by different names.
The important thing to remember is that your credit score no matter which model is used is calculated based on how you manage your credit. So if you are responsibly managing your credit it shouldn’t make much difference which potential credit score a potential lender use.