Experian is one of the three credit bureaus offering credit reports of millions of borrowers in the US. FICO is one of the two credit reporting agencies.
FICO uses Experian credit reports to compile their data and assign a credit score to the customers. Both offer similar services but in different ways to lenders and borrowers.
Let us discuss what are FICO and Experian services and how they help lenders and borrowers.
An Overview of FICO
Fair Isaac Corporation (FICO) was founded in 1989. It started reporting credit scores by using a statistical model and by utilizing the credit information available for borrowers.
The company uses credit history, gross income, and existing debts to compile your credit score. FICO has developed different versions of its scoring models over the years.
Most lenders use the FICO score to evaluate a borrower’s creditworthiness. However, lenders can use other credit scores and credit reports such as Experian or Equifax.
What is My FICO Score?
FICO score is a number that shows the creditworthiness of a person or a business. It is compiled using different input metrics.
Typically, a FICO score will range from 300 to 850. However, different versions of FICO scoring models can offer different scoring ranges.
The FICO scoring model for auto loans and credit cards is different. This score ranges from 250 to 900.
Lenders and creditors use this FICO score to evaluate the credit profile of a borrower. They can also set stubs or labels of credit scores ranging from poor, average, good, to excellent scores.
FICO fetches information from credit reports prepared by credit unions including Experian, Equifax, and Transunion.
The FICO score shows the likelihood of a borrower’s default on loan payments in the next 90 days. Simply put, it tells lenders how strong a borrower’s credit profile is.
It means the lower the FICO score higher the chances of a borrower’s default and vice versa. That is why creditors and analysts often categorize FICO scores into different ranges.
For example, a FICO score between 800-850 is considered “excellent” as it falls in the uppermost tier.
FICO offers different types of credit scores. For instance, it offers separate versions of credit scores for auto loans, credit cards, and credit-based insurance scores.
How is your FICO Score Calculated?
FICO does not reveal the actual mechanism to calculate the credit score. It uses information available from three credit bureaus to compile the final score.
However, the general guidelines that analysts suggest have the following key determinants of a FICO score.
Payment History – 35%
Your payment history has the biggest weightage in your FICO score calculations. It uses reports from credit bureaus to find out how you have repaid previous debts.
Important points regarding the payment history factor include on-time payments, late payments, and filings for bankruptcies.
Any relevant point regarding installment payments, down payments, and final repayments of debts are considered in the payment history factor.
Amount Owed – 30%
The amount owed means the number of accounts and the remaining balances on all accounts. Simply put it is the combined figure of your outstanding debts.
Creditors also analyze your credit utilization ratio that directly comes under this segment. It is important because lines of credit may offer you a large amount of loan but you may not be utilizing the full available limit.
Therefore, your outstanding debt amount and the credit utilization ratio are considered.
Credit History – 15%
Borrowers with an established credit history have a better score than young ones. A long credit history allows creditors to see how you have behaved when it comes to repaying your obligations.
Lengthy credit history will also reveal how well (or badly) you have developed your credit score over time.
Credit Mix – 10%
The credit mix means different types of loans. For instance, a personal loan and a line of credit are two types of loans.
Therefore, when you have more types of loans your credit mix will improve.
New Credit – 10%
When borrowers apply for new debt, it puts a hard inquiry on their credit reports. It changes their credit score by 5-10 points usually.
Different Versions of FICO Score
Although the general process to calculate the FICO score is the same, there are different versions of FICO scoring models.
FICO versions 8 and 9 are the most widely used scoring models. For general loans, FICO has issued new scoring model versions of FICO 10 and FICO 10T.
Similarly, FICO has different scoring versions for auto loans like auto score 9 and auto score 8.
FICO scores for mortgages have three versions as well.
FICO 2 comes from Experian, FICO 3 comes from Transunion, and FICO 4 comes from Equifax.
An Overview of Experian
Experian is one of the three credit bureaus that record, organize, and offer data about millions of borrowers in the US and other countries.
Experian offers detailed credit reports to creditors rather than a single digit (like FICO score). So, the basic job of Experian is to prepare your credit report.
FICO and Vantage use this information to give you a credit score. It means your Experian credit report is the detailed version of your final credit score.
Experian credit reports are updated frequently. When you apply for new credit, repay an existing loan, refinance, or any other relevant event happens, it gets recorded on your credit report.
Creditors use these credit reports to analyze your payment history, defaults, bankruptcies, and repayment abilities.
In short, an Experian credit report explains your credit score in detail.
Are Experian Credit Score and FICO Score the Same?
FICO offers the credit score by analyzing your Experian credit score. The other credit score is the Vantage score which uses credit reports generated by Transunion and Equifax.
Therefore, there is essentially no comparison of credit scores offered by Experian and FICO. Both these terms are the same.
Also, it is important to remember that creditors may use both credit scores. They can also analyze one or all three credit reports available to them.
Therefore, there is no perfect or ideal credit score in practice. Different types of lenders would be interested in using different credit scoring methods. Some would want to explore further by analyzing your credit reports as well.
FICO v Experian – Summary
As mentioned above, FICO and Experian offer two varying services that look similar. In practice, FICO and Experian complement each other’s services.
Here is a summary of what information will be offered through your Experian Credit Report.
- Personal Information: It will include the name, address, contact number, social security number, employer details, date of birth, and similar personal information of the report holder.
- Credit Accounts: This section will show how many credit accounts have you opened. Each type of loan like a revolving line of credit means a new credit account.
- An important section under this chapter is your payment history. It shows the status of each type of credit account.
- Collections: When borrowers are late on payments, lenders may outsource the collection to third-party services. These accounts are labeled separately on your Experian report.
- Public Record: If you have ever applied for bankruptcy, it will show under the public record section on your Experian report.
- Credit Inquiries: This section will show hard inquiries from different lenders with dates and lender names.
Your FICO score will utilize all the information listed above to give you a rating. This rating is in the form of three digits called your FICO score.