Your FICO score determines whether lenders will lend to you and how much interest you'll pay

Your FICO score is a three-digit number between 300 and 850 that lenders use to decide whether to lend you money and at what rate. It is built from your credit report — a record of your borrowing and payment history — and updated by the three major credit bureaus (Equifax, Experian, and TransUnion). The higher your score, the lower the risk you appear to a lender, and the better the terms you will receive.

The score itself does not determine whether you get a loan. A lender does. But lenders rely on your FICO score as a shorthand: they use it to sort applicants into risk categories, set interest rates, and decide credit limits. A score of 670 or higher is generally considered "good" by most lenders, though the exact threshold varies by lender and loan type.

Key Takeaways

  • Lenders use your FICO score to decide whether to lend to you and what interest rate to charge, so a higher score saves you money on mortgages, car loans, and credit cards.
  • Your FICO score comes from five factors: payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), credit mix (10 percent), and new credit inquiries (10 percent).
  • Employers, landlords, and insurance companies may also check your credit score or report, though they use different scoring models than lenders do.
  • You can check your FICO score for free once per year through AnnualCreditReport.com, or pay for monthly monitoring through the bureaus or third-party services.

How lenders use your FICO score to set loan terms

When you explore for a mortgage, car loan, or credit card, the lender pulls your FICO score and uses it to decide three things: whether to approve you, what interest rate to offer, and what credit limit or loan amount to give you. A score of 750 might get you a mortgage at 6.5 percent interest, while a score of 650 might get you the same mortgage at 7.2 percent. Over the life of a 30-year loan, that difference costs tens of thousands of dollars.

Different lenders set different score thresholds. A credit card company might approve anyone with a score above 620, while a mortgage lender might require 640 or higher. Some lenders have no minimum score but charge much higher rates to lower-score applicants. The score also affects how much you can borrow: a higher score may unlock a higher credit limit or larger loan amount.

What goes into your FICO score and why it matters

Your FICO score is calculated from five categories of information on your credit report. Payment history (35 percent of your score) is whether you pay your bills on time. Amounts owed (30 percent) is how much of your available credit you are using — if you have a $5,000 credit limit and owe $4,500, that is a high utilization ratio and hurts your score. Length of credit history (15 percent) rewards you for having accounts open for a long time. Credit mix (10 percent) means having different types of credit — credit cards, a car loan, a mortgage — rather than only one type. New credit inquiries (10 percent) tracks how many times you have recently applied for credit.

Late payments, high balances, and new applications all lower your score. Paying on time, keeping balances low, and leaving old accounts open all raise it. The score updates monthly as the bureaus receive new information from lenders and creditors.

Who else checks your FICO score or credit report

Lenders are not the only ones who look at your credit. Landlords often check your credit report to assess whether you will pay rent on time. Employers may check your credit report (though not your score) as part of a background check, particularly for jobs that involve handling money or sensitive information. Insurance companies use credit information to set rates for auto and home insurance — they do not use your FICO score directly but build their own score from similar data. Utility companies may check your credit before opening an account.

In all these cases, the entity is using your credit history as a proxy for reliability. A landlord assumes that if you pay your credit card bills on time, you will pay rent on time. An insurance company assumes that people who manage credit responsibly also file fewer claims. These assumptions are not always correct, but they are common enough that lenders, landlords, and insurers use them.

How to check your own FICO score

You are may have access to to one free credit report per year from each of the three bureaus through AnnualCreditReport.com, a government-authorized site. That report does not include your FICO score, but it does show you the information the bureaus have on file — your accounts, payment history, and any negative marks like late payments or collections.

To see your actual FICO score, you have two options. You can pay for it directly from one of the three bureaus (usually $20 to $30 for a single score), or you can use a free service that offers your score as part of a monitoring package. Many credit card companies and banks now show your FICO score for free in your online account. Third-party services like Credit Karma and NerdWallet offer free FICO scores as well, though they also use your data for marketing.

Checking your own credit report and score does not hurt your FICO score. Only hard inquiries — when a lender checks your credit as part of a loan process — count against you. Checking your own report is a soft inquiry and has no effect.

What a low FICO score costs you

A low FICO score does not prevent you from borrowing, but it makes borrowing much more expensive. If you have a score below 620, you may be denied for a conventional mortgage or car loan and forced to use subprime lenders, who charge significantly higher interest rates. A subprime auto loan might carry an interest rate of 12 to 18 percent, compared to 4 to 8 percent for a borrower with good credit.

A low score also affects credit cards. You may be offered only secured credit cards, which require a cash deposit, or cards with high annual fees and high interest rates. Over time, a low score makes borrowing more expensive and limits the types of credit available to you.

How to improve your FICO score

Your FICO score changes as your credit report changes. Paying bills on time is the single most effective way to raise your score — even one late payment can drop it by 100 points or more. Paying down credit card balances lowers your utilization ratio and raises your score within a month or two. Disputing errors on your credit report (incorrect late payments, accounts that are not yours, or duplicate entries) can also raise your score if the bureau removes them.

Raising your score takes time. A single late payment can stay on your report for seven years, though its impact weakens over time. A bankruptcy stays for seven to ten years. Building a strong score usually takes months or years of on-time payments and low balances, but the savings in interest rates make it worth the effort.

Frequently Asked Questions

Does checking my own credit score hurt my FICO score?

No. Checking your own credit report or score is a soft inquiry and does not affect your FICO score. Only hard inquiries — when a lender checks your credit as part of a loan process — count against you and typically lower your score by a few points.

What is a good FICO score?

A score of 670 or higher is generally considered good by most lenders. Scores of 740 or higher are considered very good, and 800 or higher is excellent. Scores below 580 are considered poor. The exact threshold varies by lender and loan type — some mortgage lenders require 640 or higher, while credit card companies may approve scores as low as 620.

Can I have different FICO scores from different bureaus?

Yes. Equifax, Experian, and TransUnion may have slightly different information on file about you, so your score can vary by 50 points or more between bureaus. Lenders may check one bureau or all three. You can see your report from each bureau for free once per year at AnnualCreditReport.com.

How long does a late payment stay on my credit report?

A late payment stays on your credit report for seven years from the date it was first reported. Its impact on your FICO score weakens over time — a late payment from five years ago hurts less than one from last month — but it remains visible to lenders for the full seven years.

Will paying off a collection account raise my FICO score?

Paying off a collection account may raise your score slightly, but the collection itself stays on your report for seven years. Newer FICO scoring models (FICO 9 and later) ignore paid collections entirely, but many lenders still use older models that count them. Paying is still worth doing because it stops the debt from growing and removes the legal risk.