What Are the Different Types of Credit Scores?
When people talk about credit scores, they often make it seem as if you have only one. But the truth is that we all have multiple credit scores. Your FICO® Score and VantageScore® are two examples of the major credit scores that are currently used by the three credit bureaus: Experian, TransUnion and Equifax. So, why do you have more than one, and what are the differences between them?
Why do I have so many credit scores?
“Each credit bureau receives information that creditors voluntarily report to them,” said Adam Beaty, certified financial planner at Bullogic Wealth Management in Pearland, Texas. “That means Experian and TransUnion may hear about an item in your credit but Equifax won’t. When this happens, credit scores may be different across each bureau.”
Beaty explains that since each bureau has its own algorithm to create your credit score, it’s a good idea when checking your credit to pull reports from all three bureaus. Ideally, there won’t be a significant difference between the three of them.
Credit scoring models
Currently, Experian, TransUnion and Equifax use two credit scoring models: the FICO Score and VantageScore. Each credit score measures how financially stable you are and how likely you are to be able to pay back debt. Here’s a brief overview of each one.
The best-known credit score is your FICO Score, which is short for Fair Isaac Comparison (the score is generated by the Fair Isaac Corporation). The FICO Score, which has been around since 1956, is a single number that ranges from 300 to 850. According to FICO, a number between 670 and 739 is considered a good credit score and can help you secure lower interest rates on your mortgage, car loan or any other type of loan.
Believe it or not, you actually have 49 different FICO scores that each focus on a different lending requirement for a variety of financial providers in the United States. The six major FICO scores include the Generic FICO Score, FICO Mortgage Score, FICO Auto Score, FICO Bankcard Score, FICO Installment Loan SCORE and FICO Personal Finance Score.
The five largest factors that determine your FICO Score include:
- Payment history (35%)
- Amounts owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
Experian, TransUnion and Equifax, the three major credit bureaus, created the VantageScore in 2006. It has the same range as the FICO Score (300 to 850) but can be better for new credit users, as it can provide a score with as little as one month of credit history. However, the majority of credit decisions are still made using FICO Scores.
While both the FICO Score and VantageScore take payment history into consideration, the VantageScore places more emphasis on other factors such as credit age and utilization. The following factors are used to calculate your VantageScore:
- Credit usage, available credit and existing balances (extremely influential)
- Credit mix and experience (highly influential)
- Payment history (moderately influential)
- Age of credit history (less influential)
There are other types of credit scores. For example, auto insurance and home insurance each have their own credit score that is used to calculate your premiums. A home insurance score will use information in your credit report but also take your home and neighborhood into consideration before giving you a premium amount.
How to check your credit score
“Get into the habit of pulling your credit report at least once a year through AnnualCreditReport.com,” said Beaty. “Take the time to comb through it and make sure that everything is correct.”
If you notice any incorrect information, it’s essential to write the credit reporting company to let them know what information is accurate. Be very clear about what is wrong and why, and support your claims with whatever documents you can provide.
If you’d prefer, you could leave this task to the professionals. Credit repair services will help you improve your credit score by getting rid of any errors and/or negative items on your reports for you.
Working with a reputable credit repair company can give you the opportunity to work with credit professionals who are well-versed in the various federal credit laws and can use this knowledge to your advantage.
Be sure to check out LendingTree’s credit score tool, where you can check your score, discover the factors that influence it and identify ways to boost your score and improve your credit.
It’s important to understand that a credit score reflects the information in your credit report as well as your financial stability. Of course, checking your score is only the beginning. If you decide it’s time to focus on improving your credit score, make sure you have all the tools in place to help reach your goal.