FICO vs FAKO Scores: What’s the Difference and Why It Matters

Introduction Your credit score is a crucial aspect of your financial well-being, impacting everything from loan approvals and interest rates to job and rental opportunities. Yet, not all credit scores are created equal. While the FICO score is the industry standard used by 90% of lenders, many websites offer free “FAKO” scores. Understanding the differences between these two types of credit scores can help you make informed decisions about your finances and creditworthiness.

What Are FICO Scores? 

FICO scores are the gold standard in the credit industry, developed by the Fair Isaac Corporation (FICO). These scores range from 300 to 850, with higher numbers indicating a lower credit risk. FICO scores are calculated using a proprietary algorithm that considers various factors, including:

• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• New credit (10%)
• Credit mix (10%)

Lenders trust FICO scores because they are accurate, reliable, and constantly updated to reflect changes in the credit industry. Furthermore, FICO scores are based on your credit history from the three major credit bureaus: Experian, Equifax, and TransUnion.

READ ALSO: The Power of an 800 Credit Score: Strategies and Benefits Revealed

What Are FAKO Scores? 

FAKO is a derogatory term used to refer to credit scores that are not the industry-standard FICO score. These “fake FICO” scores are often offered for free by websites like Credit Karma, Credit Sesame, and Quizzle (now owned by Bankrate). While these scores can provide a general idea of your creditworthiness, they are calculated using proprietary algorithms that may differ significantly from FICO’s methodology.

Unlike FICO scores, FAKO scores may not be recognized by lenders or financial institutions when making lending decisions. Additionally, FAKO scores can vary widely between providers, leading to confusion and inconsistencies in assessing your credit risk.

Key Differences Between FICO and FAKO Scores

1. Calculation Methodology: The most significant difference between FICO and FAKO scores lies in how they are calculated. FICO scores are based on a standardized algorithm that considers various factors, such as payment history, credit utilization, and credit mix. In contrast, FAKO scores are calculated using proprietary algorithms that may weigh these factors differently or consider additional data points.
2. Recognition by Lenders: FICO scores are widely recognized and used by 90% of lenders, including banks, credit card issuers, and mortgage companies. FAKO scores, on the other hand, may not be recognized or accepted by lenders, rendering them less useful when applying for credit.
3. Scoring Range: While FICO scores range from 300 to 850, FAKO scores may have different scoring ranges depending on the provider. For example, the VantageScore (a popular FAKO score) uses a range of 300 to 850, while the TransUnion CreditVision Score ranges from 150 to 950.
4. Data Sources: FICO scores are calculated using data from the three major credit bureaus (Experian, Equifax, and TransUnion). FAKO scores, however, may use data from only one or two bureaus, potentially leading to less accurate or comprehensive assessments of your creditworthiness.
5. Availability and Cost: While FICO scores typically come at a cost, many FAKO scores are offered for free by various websites and credit monitoring services. However, it’s important to note that some of these services may require a subscription or fee for access to your FAKO score.

Advantages of FICO Scores

1. Industry Standard: FICO scores are the industry standard, recognized and trusted by lenders across the United States. This widespread acceptance means that your FICO score is likely to be the primary factor considered when applying for credit, loans, or mortgages.
2. Accuracy and Reliability: FICO scores are calculated using a standardized algorithm and data from all three major credit bureaus, ensuring accuracy and reliability in assessing your creditworthiness.
3. Easy to Understand: With a range of 300 to 850, FICO scores are easy to interpret, with higher scores indicating better credit. This simplicity makes it easier to understand where you stand and what improvements you need to make.
4. Constantly Updated: FICO scores are regularly updated to reflect changes in the credit industry, ensuring that they remain relevant and accurate in assessing credit risk.

READ ALSO: Guide to Understanding Credit Scores and Credit Reports

Advantages of FAKO Scores

1. Free Access: Many FAKO scores are available for free through various websites and credit monitoring services, making it easy for consumers to access their credit information without additional costs.
2. Educational Tool: While FAKO scores may not be recognized by lenders, they can serve as an educational tool for consumers to understand their creditworthiness and monitor changes in their credit profile over time.
3. Identify Potential Fraud: Sudden drops in FAKO scores may indicate potential fraud or identity theft, alerting consumers to take action and protect their credit.
4. Different Perspective: FAKO scores can provide a different perspective on your creditworthiness, as they may consider additional factors or weigh them differently than FICO scores. This can be helpful in understanding your overall credit profile.

Disadvantages of FICO Scores

1. Limited Access: While lenders have access to FICO scores, consumers typically need to pay a fee to obtain their scores directly from FICO or through third-party providers.
2. Lack of Current Financial Situation: FICO scores are based solely on credit history and do not consider your current financial situation, such as income or assets. This can be a disadvantage for those who have experienced recent financial setbacks or changes.
3. Limited Credit History Impact: FICO scores may not accurately reflect the creditworthiness of individuals with limited credit histories or those new to credit.

Disadvantages of FAKO Scores

1. Lack of Standardization: Unlike FICO scores, which follow a standardized calculation methodology, FAKO scores are generated using proprietary algorithms that vary between providers. This lack of standardization can lead to inconsistencies and confusion in assessing creditworthiness.
2. Limited Recognition: Most lenders and financial institutions do not recognize or use FAKO scores when making lending decisions, rendering them less useful for consumers seeking credit or loans.
3. Lack of Transparency: FAKO score providers may not offer the same level of transparency as FICO regarding how their scores are calculated, making it difficult for consumers to understand the factors impacting their scores.
4. Potential for Confusion: With varying scoring ranges and calculation methodologies, FAKO scores can be confusing for consumers, leading to misunderstandings about their creditworthiness and the steps needed to improve their scores.

Conclusion 

In the world of credit scores, FICO and FAKO scores serve different purposes. While FICO scores are the industry standard used by lenders, FAKO scores can be valuable educational tools for consumers to understand their creditworthiness. However, it’s crucial to recognize the limitations of FAKO scores and prioritize improving your FICO score, as it is the primary factor considered when applying for credit, loans, or mortgages.

To maintain a good FICO score, focus on paying bills on time, keeping your credit utilization low, and maintaining a healthy credit mix. Additionally, regularly monitor your credit reports for errors and dispute any inaccuracies that could negatively impact your FICO score.

While FAKO scores can provide insights into your credit profile, it’s important to remember that they are not a substitute for your FICO score. Lenders and financial institutions rely on FICO scores to assess creditworthiness, and maintaining a good FICO score is crucial for securing favorable loan terms and interest rates.

Ultimately, understanding the differences between FICO and FAKO scores can empower you to make informed decisions about your finances and take proactive steps to improve your creditworthiness. By prioritizing your FICO score and using FAKO scores as educational tools, you can navigate the complex world of credit with confidence and achieve your financial goals.

READ ALSO: What credit score do you need for a 0% APR card?

FAQs 

Q: What is a good FICO score? 

A: According to Experian, a FICO score of 670 to 739 is generally considered good, while a score of 740 or higher is considered excellent. However, lenders may have different criteria for what they consider a good or bad score.

Q: Can I have multiple FICO scores? 

A: Yes, you can have multiple FICO scores, as each of the three major credit bureaus (Experian, Equifax, and TransUnion) may have slightly different information on your credit report, leading to variations in your FICO score.

Q: How often are FICO scores updated?

A: FICO scores are typically updated monthly as new information is reported to the credit bureaus. However, this can vary depending on the lender and the specific FICO scoring model used.

Q: Do FAKO scores affect my ability to get credit? 

A: No, FAKO scores are not used by lenders when making credit decisions. They are primarily for educational purposes and to help consumers understand their creditworthiness.

Q: Can I improve my FICO score by improving my FAKO score? 

A: No, improving your FAKO score will not directly improve your FICO score. To improve your FICO score, you need to focus on factors that FICO considers, such as paying bills on time, reducing debt, and maintaining a healthy credit mix.

In another related article, Breaking Down Credit Scores in the U.S. What’s Good and Bad?