Your FICO score is one of the most important numbers in your financial life. Whether you’re applying for a credit card, a mortgage or even renting a flat, your FICO score can play a big role in the outcome. But what exactly is it and how does it work?
What is a FICO score?
A FICO score is a three-digit number that shows how likely you are to repay borrowed money. It’s used by lenders to assess risk and decide whether to approve your applications for credit, loans or other financial products. Scores typically range from 300 to 850, with higher scores indicating a lower risk to lenders.
FICO stands for Fair Isaac Corporation, the company that created the scoring model in the 1980s. Since then, FICO scores have become a standard tool in the financial world.
Is a FICO score the same as a credit score?
Not quite – but they’re closely related.
A FICO score is one type of credit score, but it’s not the only one. Different credit bureaus and organisations use other scoring models, like VantageScore, to calculate credit scores. While these models use similar factors (like payment history and credit utilisation), they may weigh them differently.
In short, all FICO scores are credit scores, but not all credit scores are FICO scores. Because FICO is widely used by lenders, it’s often the most important score to keep an eye on.
Why FICO scores matter
Your FICO score isn’t just a number – it’s a snapshot of your financial reliability. It helps lenders decide how much they’re willing to lend you and what interest rate to charge. A higher score can mean better financial opportunities, while a lower score can limit your options or cost you more in the long run.
How FICO scores are calculated
FICO scores are based on five main factors:
- Payment history (35%)
Your track record of paying bills on time has the biggest impact on your score. Missed or late payments can lower it, so staying on top of your payments is key. - Amounts owed (30%)
This looks at how much credit you’re using compared to your total credit limit, known as your credit utilisation ratio. Keeping this ratio low can help boost your score. - Length of credit history (15%)
The longer your credit accounts have been open, the better – as long as you’ve managed them well. - New credit (10%)
Opening too many new accounts in a short time can hurt your score, as it may suggest financial instability. - Types of credit used (10%)
A mix of credit types, like credit cards, loans and mortgages, shows you can handle different forms of borrowing responsibly.
FICO scores and your financial life
Your FICO score impacts many areas of your financial life, including:
- Mortgage lending: A good score can help you qualify for a mortgage and secure lower interest rates.
- Auto loans: Lenders use your score to decide how much to lend and what rates to offer.
- Credit cards: Higher scores make it easier to get approved for credit cards with better rewards and lower fees.
- Insurance rates: Some insurers use your FICO score to help determine premiums.
- Rental applications: Landlords may check your score to see if you’re likely to pay rent on time.
- Job applications: In some industries, employers may review your credit report (though not your score) as part of the hiring process.
Improving your FICO score
If your score needs some work, here are some practical tips to improve it:
- Pay bills on time: Late payments can lower your score, so set up reminders or automate payments to stay on track.
- Keep credit card balances low: Aim to use less than 30% of your total credit limit to keep your credit utilisation ratio in check.
- Don’t close old accounts: Length of credit history matters, so keeping older accounts open can help.
- Limit new credit applications: Only apply for credit when you really need it to avoid too many hard searches.
- Dispute errors on your credit report: Check your credit report regularly for mistakes and have them corrected to avoid unnecessary damage to your score.
How Zilch can help
Zilch offers a smarter, more flexible way to manage your money – especially if you’re working on improving your FICO or credit score.
With Zilch, you can:
- Spread costs with Pay over 6 weeks or Pay over 3 months, making it easier to manage payments.
From 14.99% APR Representative
Spend responsibly, spending more than you can afford could seriously affect your financial status. Credit subject to status, 18+, UK residents only. T&Cs apply. - Use Pay now to earn up to 5% back in Zilch Rewards – a great way to stretch your budget without adding to your credit utilisation.
- Build your credit score with Zilch Up – a dedicated card designed to help you improve your financial standing through responsible spending.
- Improve your FICO or credit score just by using Zilch responsibly and always paying on time.
By helping you stay in control of your spending, Zilch can be part of a healthier financial routine. Nice.
In short
Your FICO score is more than just a number – it’s a tool that can open doors to better financial opportunities when managed well. By understanding how it’s calculated and taking steps to improve it, you can build a stronger financial future.
Start with small changes like paying bills on time and keeping balances low, and you’ll be on your way to a healthier FICO score and more financial flexibility.