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What Is A Good FICO® Score And Which One Do Lenders Use?

7-minute read

*As of July 6, 2020, Quicken Loans is no longer accepting USDA loan applications.

When it comes to buying things without paying cash, most people understand the importance of having good credit, especially for large purchases such as a home or automobile. But not everyone knows how to build good credit, check their credit, improve their credit scoring, or understand the different types of credit reporting by different agencies.

For example, if you plan to apply for a mortgage, bank loan, or new credit card, you’ll need to know how to access your FICO® credit scores and what each one means.

It’s important to know about your FICO® Score because a good score can ultimately save you thousands of dollars since lenders are more likely to give lower interest rates to people who present fewer risks to recouping their principal plus interest (i.e. those with higher/better scores).

If you want to save money and maintain good credit, continue reading for the latest answers to the most popular questions surrounding FICO® scores.

Ultimately, your FICO® Score is used to help lenders determine the likelihood that you will repay a loan on time.

What Is A FICO® Score?

 A FICO® Score is a three-digit number ranging from 300 – 850 which is generated based on the information in your credit report. It looks at how long you’ve had credit, how much credit you have, how much of your credit is used and if you pay your bills on time.

All of these factors determine your mortgage eligibility and influence how much money lenders will give you, how long you have to repay them and what your interest rate will be.

Ultimately, your FICO® Score is used to help lenders determine the likelihood that you will repay a loan on time.

What Is A Good FICO® Score?

Similar to other kinds of credit scores, FICO® Scores are used by lenders such as banks providing mortgage loans, credit card companies, and car dealerships or auto lenders when financing a new or used car.

Generally, a FICO® Score above 670 – 700 is considered a “good” credit score, and a score above 800 is considered “exceptional.” On average, most credit scores fall between 600 – 750, which is considered “fair” to good. A “poor” or otherwise bad FICO® Score is anything below 580.

Just remember that the higher your score, the better. Because if you have a higher credit score, you are less likely to pose a risk for creditors and you’ll be given better terms to qualify for a loan or new credit card.

Create a Rocket Account today.

Track your credit, manage your personal finances and get ready to buy a home.

FICO® Score Chart

There is a range of what lenders may consider a good or bad FICO® Score. Here is a chart that shows each score’s range and rating.

What’s The Difference Between A FICO® And A Credit Score?

It’s important to differentiate FICO® Scores from other credit scores because FICO® Scores are created by the Fair Isaac Corporation and are evaluated by over 90% of top lenders when issuing loans.

Though there are other types of credit scores, FICO® is used as an industry standard for determining creditworthiness. Some credit scores are calculated differently from FICO® and are not as accurate.

Bottom line, FICO® is the most commonly used credit score, and therefore the most credible and comparable.

How Is A FICO® Score Calculated?

FICO®, the California company that tabulates the namesake consumer credit score, uses five key pieces of credit data to determine your credit score.

Your payment history accounts for 35% of your score, amounts owed accounts for 30% of your score, length of credit history accounts for 15%, new credit accounts for 10% of your FICO® Score, and lastly, your credit mix accounts for the remaining 10%.

Payment History

Your payment history makes up 35% of your credit score and is the most important factor. This includes your payment record and your history of on-time and late payments.

Amounts Owed

The second-most important factor that affects your credit score is the amount of money you owe to creditors which makes up 30% of your total score. This looks at your credit utilization rate, which is the amount of available credit you are using. Essentially, the closer you are to a 0 balance, the higher your credit score will be.

Length Of Credit History

About 15% of your credit score is influenced by your credit history. This includes how long you’ve had your oldest and newest accounts, and the average age of all your accounts.

Credit Mix

Also taken into consideration at 10% is your mix of credit account types. For example, you can have credit cards, retail accounts, mortgage loans and installment loans. If you want a better score, you need to show that you can manage a variety of credit types.

New Credit

The final 10% of your credit score looks at the number of new credit accounts you’ve opened recently. If you submit too many inquiries about new credit cards, your credit score will be damaged. If you plan to take out a mortgage loan anytime soon, try to refrain from opening new credit accounts, as it will affect your FICO® Score.

For example, someone who pays their bills on time (payment history), has a low “amounts owed” or credit utilization balance, a longer credit history, a mix of credit (i.e. installment loans and car loans), and hasn’t recently opened new lines of credits or loans would be said to have a good or exception credit score.

Someone who pays defaults on bills by paying them late, has a high “amounts owed” balance, short credit history, limited credit types, and has recently inquired about a new line of credit would certainly have a poor or bad FICO® credit score.

How To Check Your FICO® Credit Score

When determining if an applicant qualifies for a mortgage loan, car loan, or credit card, lenders will use the lowest median credit score of all borrowers on the loan as the qualifying credit score. This means that lenders will look at your three credit scores from each bureau (Equifax®, Experian™ and TransUnion®) and they will use your middle score.

If you’re applying for the loan with a spouse or second person, the lender will choose the lowest median credit score of each of your scores. For example, if your spouse’s scores are 560, 590, and 610, and your scores are 670, 700, and 710, the qualifying credit score would be 590.

You can use that score or you can choose to be alone on the loan, which would potentially allow you to get a better rate. But if you make that decision, you wouldn’t be able to use your spouse’s income to qualify.

To help you maintain or improve your credit score, Rocket HQSM offers a free credit check on a weekly basis to understand what yours is and how you can improve it.

Rocket HQ’s scoring simulator generates an accurate score that will show you how different factors like opening a new account or forgetting a payment can affect your scores. This is designed to make you more informed and help you learn about how to build and maintain your credit over time.

Create a Rocket Account today.

Track your credit, manage your personal finances and get ready to buy a home.

Why Are FICO® Scores So Important?

Your FICO® Scores are important because they determine your mortgage eligibility. Based on your credit score, your lender will regulate how much money you will receive and how long you must pay them back at a given interest rate.

Having a good FICO® Score is even more important because it will help you save a lot of money. It will also make you eligible to qualify for a wider variety of mortgage options. Later we will talk about what is considered a good score and how you can build your current score.

Which Credit Score Is The Most Important?

You may think that you have just one credit score, but you actually have many. In fact, FICO® is just the name of a brand. Under that brand there are many types of credit scores under two main categories: base FICO® Scores and industry-specific FICO® Scores.

Base FICO® Scores are the most commonly used type of FICO® Score. You have three different base FICO® Scores made up of credit reports from the three major credit bureaus. When applying for a bank loan or credit card, lenders will use your base credit score.

Industry-specific FICO® Scores are used when purchasing specific items such as auto loans and credit cards. Types of industry-specific scores include the FICO® Bankcard Score and the FICO® Auto Score

If you are unsure what FICO® Score your lender will look at, contact your creditor and ask which one they use to evaluate applicants. Don’t worry though, the basic scoring criteria is similar for most FICO® Scores. So, if one of your FICO® Scores is considered to be in the “good” range, your other scores may also be in the “good” range.

Which FICO® Score Do Mortgage Lenders Use?

When determining if an applicant qualifies for a mortgage loan, lenders will use the lowest median credit score of all borrowers on the loan as the qualifying credit score. This means that lenders will look at your three credit scores from each bureau and they will use your middle score.

Maybe you’re wondering what credit score you need to buy a house. Although there isn’t an exact number, and many factors play into your eligibility. Here are the standard minimum credit scores that our sister company, Quicken Loans®, uses when lending mortgage loans:

  • Conventional mortgage: 620
  • FHA mortgage: 580
  • Veteran Affairs (VA) Mortgage: While the VA does not have a minimum credit score requirement, Quicken Loans requires a 620 credit score on all VA loans
  • USDA mortgage: 640

How To Check Your FICO® Score

Now that you know what your FICO® credit score is and how to maintain it, it’s important that you continue to make the right financial moves.

For more tips on increasing your credit score, visit the Rocket HQ credit portal, learn the difference between FICO® and VantageScore, or see how your FICO® score affects your mortgage rate.

Apply for a Mortgage with Quicken Loans®

Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

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