Fico Score Range

Lets start with what a Fico Credit Score is and what the Fico Score Range may mean to you when you apply for credit. Two guys by the name of Bill Fair and Earl Issac blessed us with a system for decision making back in 1956 called Fico. The Fico score is based on the financial risk involved in granting credit.

Some people call it a Credit Score or Fico Credit Score but it may or may not apply since the Fico Score may just be one component of a lender's proprietary methods for creating a Credit Score for their specific purpose. So in our examples we will stick to actual Fico Score information.

The Fico score is determined by five factors of a persons credit history. All three of the major credit bureaus use this scoring method in some shape or form when reviewing individual credit files (or a report requested by you or a potential creditor). Over the years, many tweaks and adjustments were made to this scoring system by not only the original Fair Issac company but the credit bureaus and lenders too.

Almost any user of the "Fico Scoring System" like to add their own adjustments to meet individual needs. Some even change the name or designate it with a proprietary name. But the basics remain the same in that it is a rating based on credit history. What weight each one of the five factors might carry can be different, and even the factors can be different.

That's why your so called Fico Score can be different from each reporting entity. The three credit bureaus often will access a different score for two reasons. First, not all have the same information (each creditor may choose who they report to), and the second is that most adjust the basic system to their specific weighting methods.

OK, so you now know that your Fico Score can be different depending on the entity that is rating you. Most times the differences should be small but if they happen to be at an important breaking point like 700, the impact is greater.

The base Fico Score range can be between 300 and 900. But once again many lenders can operate between a smaller set of numbers like 400 to 800. The scale is not as important as the actual number since most agree on specific breaking points for offering interest rates.

Keep in mind that these are guidelines and each lender can have a few of it's own parameters and your Fico Credit Score may be different from different lenders. As of late January 2009, here is an example of Fico Scores and interest rates on a typical 30 year mortgage of $150,000. Also remember that there are other factors involved besides your Fico Score. Like your income, how much of a down payment you willing to apply, the value of the property, just to name a few in the decision to grant you credit.

In the example above you can see the difference in interest rate and monthly payment based on the Fico Score Range used. The low 600's Fico Score can cost you $150 a month more than the Fico Score of 760 and above. Over the a 30 year mortgage, that can add up to $54,000. Your Fico Credit Score is directly related to the interest rate you are charged.

We used a mortgage in this example but the loan could have been a lesser amount for a car, boat, furniture, whatever. The same basics apply to any credit scenario, the higher your credit score, the less it costs you.

Many lenders keep it much more simple by creating larger break points like every 50 points rather than 20. Others will offer a standard interest rate and you either qualify or don't depending on your Fico Score. It's up the the lender on where the price points may be, there are no standard rules.

Most credit advisors all agree that you want to stay above 700 if you want a reasonable interest rate. As you can see in the example above, the difference between 700 and 760 is only $20 per month. So if you want to shoot for a good Fico Score, 700 would be a valid goal to use for a reasonable interest rate.

And there is a new Fico Score system (Fico 08) that is becoming effective at the end of January 2009. The government required some consumer changes and Fico adopted some changes to increase the effectiveness based on recent trends and historical data. The amount of "weight" on the five areas have changed and some of the original penalties have been removed.

Whether this new Fico Credit Score version will have any impact remains to be seen. Remember that every lender has adjusted the factors and weights since day one. The consumer rights areas are probably a good thing but who knows if they will have any impact on the scoring itself.

We'll know more about Fico 08 in the next few months when more lenders are actually using the new method. It may or may not effect the current Fico Score range in regard to granting credit or even the interest rate.  As soon as more people are scored using the new version we will better understand the impact on your Fico Credit Score.