The simple answer is that your FICO score is a numerical representation of your credit habits at a specific moment in time, and how they translate into financial risk. It doesn't represent your whole life, only a snapshot of how your credit looks right now. It also doesn't contain only bad points about your credit, but good points as well.
The name "FICO score" is used because most credit bureaus use scoring software that was developed by Fair Isaac and Company. There are three main bureaus, Equifax, Experian and TransUnion, and the scores they generate are referred to as the BEACON score, Experian/Fair Isaac Risk Model, and the Empirica score, respectively.
In order to have a FICO score, you must have at least one credit account that is at least six months old, and one account that has been updated in the past six months.
How FICO scores work
When you apply for credit, the lender will pull your credit report. Mortgage lenders usually require a tri-bureau or tri-merge credit report, which pulls scores from all three of the main bureaus, while other lenders, especially rental agencies and car dealerships, may use only the Experian or Equifax score. There is no official cutoff score that all lenders use to determine credit worthiness (though there are trends), and even a low FICO score doesn't necessarily mean you'll be a bad customer.
Most lenders don't rely solely on FICO scores to make their credit decisions, but use them in addition to other factors, like your employment history, the length of time you've been at your current address, the amount of credit and your perceived ability to make the required payments on the line of credit for which you're applying.
Other points to consider
There are a few other points about FICO scores that you should remember:
- There are other credit bureau scores. FICO scores are the most common credit bureau scores used for consumer debt but there are other bureau scores that evaluate your credit history differently. With some scoring systems a higher score means more risk, rather than less, while with FICO scores, higher results mean less risk.
- Different bureaus may have different results. It's actually pretty unusual for the scores from all three bureaus to be identical, since some creditors only report to one or two of them. Some lenders will use the highest of the three when processing your application, some will use the lowest, and others will use the middle score.
- Scores change over time. As the information reported to each bureau changes, your FICO scores will also change. That's why we say each FICO score is merely a snapshot of your credit at that moment in time.
- Your FICO score is not a measure of your self-worth. Low FICO scores do not mean you're a bad person, and high scores don't mean you're a good person. People have credit issues for many reasons, especially when there's an economic downturn or a recession. That doesn't mean you should discount your credit scores, it just means you shouldn't let them determine how you value yourself as a person.