News and advice for small business owners, by small business owners.

Call us for free financing advice:

1 (800) Fundera 386‐3372

The FICO Score – How Is This All Important Number Calculated?

Chances are you’ve heard of your FICO score and consider it pretty much interchangeable with your “credit score.” This article will explore how one corporation came to be synonymous with the “credit scoring” industry and give a little insight into their process of assigning a number to your credit history.

Introduced in 1989 by Fair, Isaac and Company (FICO), a majority of banks and creditors now use the score to guide the loan or credit process. FICO uses reports from the three national credit bureaus – Experian, Equifax, and TransUnion – to calculate these scores.

As you probably know form using a service like Credit Karma to check your own credit score, the classic score can vary based on the information provided by the credit bureau. The score is based on the following factors:

  • Payment History—35% of your score is based on whether or not you have paid past credit accounts. This is usually the first thing a creditor wants to know about you.
  • Amounts Owed—30% of your score is based on how much money you owe to lenders. Owing money doesn’t necessarily mean that you will have a low score.
  • Length of Credit History—15% of score is comprised of the age of your credit accounts. FICO takes into consideration your oldest account, your newest account and a median of all of them. FICO also looks at how long it has been since you last used your account.
  • Types of Credit In Use—10% of your score is based on the varying types of loans and credit that you have. This can cover credit cards, retail accounts, and mortgages among other things.
  • New Credit—The last 10% of your score is based on how many new lines of credit you have opened. FICO states that, “Research shows that opening several credit accounts in a short period of time represents a greater risk – especially for people who don’t have a long credit history.”

The FICO score ignores the following:

  • Your age, race, marital status, religion or origin.
  • Your occupation, salary and length of employment.
  • Any financial obligation listed as child/family support.
  • Interest on an account.
  • Any information not found in your credit report.
  • Whether or not you are participating in credit counseling.

There are several other types of FICO scores including bankcard, personal finance, mortgage, installment loan, or auto loan. The range for the classic FICO score is between 300-850. The scores generally line up like this:

300-629: Bad credit

630-689: Average/fair credit

690-719: Good credit

720 and up: Excellent credit

According to FICO, the median average score was 711 in 2011. In 2003, the passing of the Fair and Accurate Credit Transactions Act allowed consumers to get a free copy of their credit report once a year from each of the credit bureaus. For your own free copy, check out (and don’t fall for fake competitors who will try to charge you!)

Still have questions about FICO? Ask us in the comments.



Jennifer Dunn

Jennifer Dunn

Contributor at Fundera
Jennifer Dunn is a small business contributor for Fundera and owner of Social Street Media. She is also the community manager at GoDaddy Online Bookkeeping, and her long-standing life goal is to learn something new every day.
Jennifer Dunn