FICO or FICA Score
Monkey Confused about Financial Terms

Did you came here searching for information on FICA score?  What you’re looking for is actually a FICO score, which can be found at sites such as Equifax Score Watch.

It was Friday night and I was browsing the web, reading financial tidbits and news (yeah this is how every cool 20-something rolls during the weekend) — I noticed that there was a large confusion online between the financial terms of FICO and FICA.

To make matters worse, a quick search on Google shows that many websites use the term FICA score interchangeably with the term FICO score, without clearing up the difference between these two completely unrelated financial terms.

As my weekend web trolling is already going so well, why not write a post to clear up the misconception? This will for sure make the weekend extra cool. After all, who needs to go out when there’s blogging to be done!?

What is FICA?

FICA stands for Federal Insurance Contribution Act.  Without going into too much history about Social Security and Medicare, FICA basically mandates that you and your employer contribute a percentage of your income to this tax, in order to fund the aforementioned Social Security and Medicare.

For those that may not know, Social Security provides income to retirees, people with disability, and some other select groups of people, while Medicare provides for medical insurance coverage to persons over age of 65 and again, other select groups of people.

And that’s what the 6.2% of your paycheck goes to (your employer pays the other 6.2%).  If you’re a student being employed by the educational institution you’re attending, rejoice, you’re an exception to the FICA tax!

If you happen to be self-employed, your FICA contribution will be split to 12.4% for Social Security and 2.9% for Medicare. There are of course exceptions to this rule, whether you’re self-employed or a regular wage-earner. You can read more about these exceptions in the resource of links below.

But that’s about the gist of the term “FICA” and how it matters to you.  So does FICA have anything to do with credit score or is there even such a thing as a FICA score?

Nope!

To clear the acronym confusion up, read on.

What is a FICO Score?

A FICO score is a credit score, which in short is a score providing a grade on your overall credit worthiness.  A true, legitimate FICO score can be purchased from Fair Issac Corporation at myFICO.com or with the Equifax Score Watch monthly plan.  The score ranges from 300 to 850 — the higher your score the better your overall creditworthiness and likelihood to receive favorably interest rate when applying for a loan (home, auto, etc.).

These scores are formulated with data from your credit reports. Because you have three major credit reports from three different major credit reporting agencies (TransUnion, Equifax, and Experian), you may have three slightly different FICO scores.

Factors in your FICO score:

  • 35% – Payment history
  • 30% – Amounts owed
  • 15% – Length of credit history
  • 10% – New type of credit
  • 10% – Types of credit used

In short, if you have a positive payment history (never paying late), your amounts of balances on your accounts are low, and you have a long history of positive accounts — then you most likely have a super credit score.

Those are the only factors of your FICO credit score. Your sex, race, color, religion, national origin, marital status, age, salary, occupation, and residency location will NOT be factors determining your score.  If its not in your credit report, then it’s not a factor.

Importance of FICO Scores

So why are FICO scores important and why are there so many people online searching about “FICA score?”

A good FICO score increases your chances of receiving favorable interest rate.  With current interest rates, that means when you compare between an excellent FICO score of 760 and a poor FICO score of 580, there will be a difference of $780 in monthly mortgage payment for a 30 year fixed, $300,000 loan.

If that didn’t get your attention, the interest difference is a low 5.63% APR versus a high 9.451% APR. This is a significant impact as when the mortgage is paid off, the difference in total interest paid will be about $280,000!

Thus knowing and keeping your FICO score can be pretty important.  As long as you properly manage your credit usage, your FICO score should be top-notch and a non-issue.

This concludes a brief primer on FICA scores. Woops , I mean FICO scores.

top photo credit: QuitoCarela

Related Links and Sources: