How FICO Scores Work

How FICO Scores Work

Your FICO score is calculated by a mathematical equation that evaluates your credit report information and then compares this to information and patterns of other borrowers. A predictive model gives an asessment of your future credit risk. Your FICO score is a measurement of this risk.

For a FICO score to be calculated from your credit report the report must contain enough information, and enough recent information, on which to base a score. You must have at least one account that has been open for six months or longer and has been reported to the credit reporting agency within the last six months.


Credit scores are often called FICO scores because most credit scores in the US and Canada are produced from software developed by Fair Isaac Corporation. FICO scores are provided to lenders by the three major credit reporting agencies:

Equifax, Experian and TransUnion.

FICO scores provide the best guide to future risk based solely on credit report data. The higher the score the lower the risk. But no score is absolute in predicting whether a specific individual will be a good or bad customer. While many lenders use FICO scores to help them make a lending decisions, each lender has their own strategy. Including a level of risk that is acceptable for a given credit product. There is no single cutoff score used by all lenders.


When people talk about your score they are referring to your FICO score. But there are actually three different FICO scores as each credit reporting agency has their own method of interpreting the credit report. Lenders will often use all three scores and base your loan on the middle score. 


The company who developed the FICO score, Fair Isaac, makes the scores as consistent as possible between the three credit reporting agencies. If your information was identical at all three credit reporting agencies your scores might still be different because the models for the three credit reporting agencies are developed separately. However all three scores are usually within a few points of each other.

Some people find that their scores at the different bureaus vary by more than a few points. The difference in scores can be caused by a couple different factors:

  1. The way lenders and other businesses report information to the credit reporting agencies sometimes results in different information being in your credit report at the three agencies.
  2. The agencies may also record the same information in different ways. Small differences in the information at the three credit reporting agencies can affect your score.

Since lenders may review your score and credit report from any of the three credit reporting agencies it is a good idea to check your credit report from all three and make sure they are all accurate.