What Is a Credit or FICO Score?

A credit score or FICO score is a number that measures a consumer's credit risk. The FICO score was developed by Fair Isaac Corporation and is the score most commonly used by lenders to help determine whether to approve a loan application. The three major credit reporting agencies each generates a credit score based on the model used to calculate the FICO score. High credit scores help consumers qualify for loans and credit cards, while low scores could prevent credit approval.

Uses

Banks, lenders and other creditors use a consumer's credit scores to help determine whether an individual qualifies for credit. The scores also influence the interest rate, loan terms and payment amount of a loan. Higher scores usually result in lower interest rates and payments. Having higher scores can save a consumer hundreds or thousands of dollars over the life of a loan. The scores can also affect a consumer's ability to rent an apartment and the amount of the security deposit required. A credit score is not the only factor a lender considers when determining whether to approve a credit application, but it is a significant factor.

How They're Calculated

Credit scores are calculated using information from a consumer's credit report. Several factors are included in the formula, including payment history, amount of credit owed, length of credit history, number of credit applications and the mix of types of credit. Each of the three credit reporting bureaus -- Experian, Equifax and TransUnion -- updates a consumer's credit report based on information from creditors. As a result, scores change frequently.

Score Range

FICO scores ranges from 300 to 850. The scores from the three credit reporting bureaus usually are similar, but can vary depending on different consumer data at each bureau. Lenders typically view scores above 700 as a low credit risk, while anything below 600 could result in a high interest rate or a denied credit application, according to the Consumer Federation of America website. A consumer can do a few things to raise his scores, such as paying bills on time, keeping low balances on credit cards and refraining from applying for and opening many credit accounts.

Where to Find Them

Credit reports and scores are available from each of the three credit bureaus. You are allowed to receive a free copy of your credit report from each of the three credit reporting bureaus once each year by going through the AnnualCreditReport.com website. You also can obtain credit reports and credit scores through the individual bureaus, although they typically charge fees. You should periodically review your credit report to check for accuracy and to monitor changes. While FICO scores are the most commonly used credit scores, other credit scores are used by some lenders and credit bureaus to measure risk. Lenders sometimes use an internally generated score that combines a FICO score with other consumer information.