How FICO Scores are Calculated

Understanding your credit score is key to making smart financial choices. That’s because credit scores impact most of your major financial milestones—including buying a house, leasing a car, qualifying for a loan, and even getting security clearance. While there are several credit scoring models out there, “FICO scores” are one of the most popular types. Therefore, many people still find themselves wondering, “Are FICO scores and credit scores the same?”

Keep reading! This article breaks down everything you need to know about FICO scores, including what they are and how they are calculated.

FICO Score Definition

A FICO score is a type of credit score created by the Fair Isaac Corporation (FICO). It shows how likely you are to repay borrowed money on time. Banks, credit card companies, and other lenders use the score to weigh the risk of lending you money.

All FICO scores are credit scores, but not all credit scores are FICO scores. There are other credit scoring models out there too, like VantageScore. However, FICO is considered the “gold standard” because it is used by over 90% of the top lenders.

FICO scores range from 300 to 850. The higher your score, the better your creditworthiness. Here’s a quick breakdown:

• 300 to 579: Poor Credit
• 580 to 669: Fair Credit
• 670 to 739: Good Credit
• 740 to 799: Very Good Credit
• 800 to 850: Exceptional Credit

Knowing your FICO score helps you understand how lenders evaluate your financial health.

How to Calculate Your FICO Credit Score

Five main factors contribute to your FICO score, each carrying a different weight. Here’s how it breaks down:

1. Payment History — 35% of Your FICO Score

Your payment history is the biggest factor in calculating your FICO score. Lenders want to see if you consistently pay your bills on time—after all, they need to know if they will get their money back.

• Importance of Payment History: When you pay your bills on time, you show lenders that you are reliable. Meanwhile, when you miss a payment (or pay late), your FICO score takes a hit and hurts your chances of borrowing money later.
• Mission-Ready Tip: Paying your full balance is ideal, but you should always make at least the minimum payment by the deadline. We suggest setting up reminders or auto-pay can help you stay on track!

2. Credit Utilization — 30% of Your FICO Score

Credit utilization measures how much of your available credit you’re using at a time. For instance, if your credit limit is $10,000 and your balance is $3,000, your credit utilization ratio is 30%.

• Importance of Credit Utilization: Having a lower utilization ratio signals to lenders that you can use credit wisely and live within your means (without overspending).
• Mission-Ready Tip: Use less than 30% of your available credit, and if possible, aim for 10%. In addition, consider paying your balances more often or increasing your credit limit—this will make it easier to maintain a good credit utilization ratio.

3. Credit History Length — 15% of Your FICO Score

This factor weighs how long your credit accounts have been open—the longer, the better, especially with a record of on-time payments. Your credit history considers the age of your oldest account, the age of your newest account, and the average age of all your credit accounts together.

• Importance of Credit History: Lenders prefer borrowers with a track record of credit stability and experience over time.

• Mission-Ready Tip: Keep your accounts open for as long as possible and be mindful of how often you open/close new accounts. (A longer credit history can work in your favor!)

4. Credit Mix — 10% of Your FICO Score

Managing different types of credit—like credit cards, auto loans, and mortgages—can improve your FICO score. This shows lenders that you can responsibly handle multiple kinds of credit.

• Importance of Credit Mix: Maintaining both revolving credit (like credit cards) and installment credit (like personal loans) shows lenders you have a balanced approach to managing debt.
• Mission-Ready Tip: Avoid taking out new loans just to increase diversity. Let it grow naturally through different life milestones.

5. New Credit — 10% of Your FICO Score

Applying for several new credit accounts in a short time can temporarily lower your FICO score. Why? Because each application results in a "hard inquiry," which gets recorded on your credit report.

• Importance of New Credit: Applying for too many credit accounts at once is a red flag because it hints that you are desperate and having financial trouble.
• Mission-Ready Tip: To keep your credit profile strong, apply for credit only when needed and avoid submitting multiple applications in a short period of time.

How to Build Your Credit with Secured Credit Card

Improving your FICO score takes time, but a good place to start is with a secured credit card. Unlike regular credit cards, secured cards require a security deposit upfront. This deposit acts as collateral, reducing risk for the lender. If you miss payments or default, the lender can use your deposit to cover what you owe. Due to their added security, secured credit cards are easier to qualify for, even if you have a low credit score or limited credit history.

At Armed Forces Bank, we’re proud to offer the Credit Builder Secured Credit Card, which is one of the best ways to build credit.

Notable Features:

• No Hidden Fees: Say goodbye to application fees, annual fees, and over-the-limit fees—so you can focus on building credit without extra costs.

• Automatic Reporting: Your on-time payments and responsible activity is reported to the three major credit bureaus monthly, helping you build or rebuild your FICO score.

• Set Your Own Credit Limit: Your limit is based on the amount you deposit, between $300 and $3,000.

• Path to an Unsecured Card: If you use the Credit Builder Card responsibly, you could qualify for an unsecured credit card with perks in the future.

Armed Forces Bank’s Credit Builder Secured Credit Card provides a straightforward way to improve your financial standing without obstacles. Take charge of your credit journey and get started today!

Apply for Credit Builder Secured Card

Not sure where to begin? Check out our Credit Assessment Calculator and other tools to help you understand your finances.