Credit score types, what they mean & what matters

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What is your number? Today more and more businesses are checking your number. To be employed you are not only required to be qualified for the job but also need to have a good number. What is a good number? What does this “number” even mean? This number, your credit score, essentially means how trust worthy you are with respect to paying back your loans and generally handling your finances. So if you never borrowed anything from anyone in your life you should have a perfect score? Nope. In fact you will have a very low score! And you want a high score, because the credit score determines what interest rates you will be offered for your credit cards, car loan, mortgage. Even basic things in life like getting a job, making deposits on utilities, getting an apartment… every thing seems to based on this score. How can you get a good credit score? There are dozens of places that promise you a “free” credit score. Are they all equal? Why are these scores different? Which is the real score and which one is used by the lenders?

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What is a credit score?

Credit score, in simple terms, is a number that lenders use to decide how trust worthy you are in paying back loans. Think of it as a GPA that grades you based on analysis of information in your credit report, which lists your debt and repayment history. For more information on credit reports and how to get them for free : What is in your credit report and why should you care?433

Who calculates this score? Is there more than one score?

The three credit reporting agencies Experian, TransUnion and Equifax collect data about consumers’ financial usage to compile credit reports. The data from these credit reports is used to calculate the your score. The major player in credit scoring is FICO – Fair Isaac Corporation Inc.. FICO uses the information from these three agencies and generates a credit score, which is what is used by most lenders. Each of these individual credit reporting agencies have their own flavor of a credit score generated with their data. So there is at least 3-4 different FICO scores. There are other scores like VantageScore that the three credit report agencies came up with, PLUS score from Experian, TransRisk Score from TransUnion and other third party scores like the creditXpert score. All of these scores are marketed as “credit score”. Below are some different types of credit scores:

1. Classic FICO score (Equifax) : Traditional FICO score derived using the Equifax credit report data. Jump to more information about this score…434
2. Classic FICO score (TransUnion) : Traditional FICO score derived using the TransUnion credit report data. The lender version of the TransUnion FICO is called as TransUnion Empirica score. Jump to more information about this score…435
3. Vantage Score : Score model developed by the 3 credit bureaus – Experian, Equifax & TransUnion to compete with the FICO score, but still not widely used. Jump to more information about this score…436
4. PLUS Score : Score developed by Experian using their credit report data. These are NOT sold to the lenders. Jump to more information about this score…437
5. TransRisk Score : Score developed by TransUnion using their data. Jump to more information about this score…438
6. CreditXpert Score : CreditXpert is a software company that is also in the credit score calculation market. They also use the data from the 3 credit agencies to provide the scores. Jump to more information about this score…439
7. Community Empower (CE) Score : Community Empower (CE) is a homeownership counseling network they produces the CE score. Jump to more information about this score…440
8. Industry enhanced credit score : The FICO scores that are enhanced with added data specific to the industry like Auto enhanced FICO score comes under this category. Jump to more information about this score…441

The scores that are not FICO are called as FAKO scores (FAKe – O scores). The classic FICO score is still the most famous and widely used score. And all the scores use the same information – the information in your credit report. So keep that clean, you will get a high score no matter what the scoring system is.

I got my credit score from 2 different websites and they are different. Why?

Each of the scores mentioned above basically uses the information that is included in your credit reports. But the weight each of them gives for different factors varies. For example, score model A might give more importance to payment history than score model B, where as model B might give more importance to length of credit history than model A. But if your score is “excellent” using one model, you won’t be “poor” in another.

What is in my credit score?

Different scoring models consider different factors and apply different weights to those factors. Here are the different models and what goes into each of them.

Classic FICO score: Range 300-850

Below I have listed detailed information on the FICO score as this is the most widely used score model.

Payment History : Your payment track record.

Amounts owed : The amount of debt you owe.

Length of credit history : How long you’ve used credit cards or any type of loans.

New Credit : How often you’ve applied for new credit and whether you’ve taken on new debt.

Types of credit used : The types of credit you currently use, such as credit cards, retail accounts, installment loans, finance company accounts and mortgages.

For more detailed information on each of these factors please visit this page @ myFico442

Vantage Score : Range 501-990

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Comparison of the factors influencing the the scores (FICO, PLUS, Vantage, TransRisk, CreditXpert, Community Empower Scores)

Industry enhanced credit score

This is an enhanced version of the FICO score. The major difference between the enhanced version and the classic version is that the auto enhanced version gives more in depth information about your past auto related credit. Most car lenders primarily care about how you’ve paid your auto loans. The auto score gives them this information.

1. Have you made late payments on a current or previous auto loan or lease?
2. Have you ever settled an auto loan or lease for less than you owed?
3. Have you had a car repossessed?
4. Have you had an auto account sent to collections?
5. Did you include your car loan or lease in your bankruptcy?

What is NOT in my credit score?

By law, credit scores may not consider your race, color, religion, national origin, sex and marital status, and whether you receive public assistance or exercise any consumer right under the federal Equal Credit Opportunity Act or the Fair Credit Reporting Act.

Which credit score should I get?

If you are shopping for a loan : Get the FICO score. That is what the lenders see.

If you are just curious or want to make sure you are doing good : Get your credit reports regularly and monitor one of the FAKO scores. They are cheaper to get.

How can I access my credit score?

There are plenty of ways to access your score – free or otherwise. I have written a separate post on that. It is scheduled to be published tomorrow. I will include the link here.

What is a good credit score?

When everyone talks about your “score”, they are most likely talking about FICO scores. They are by far the most popular scoring system. FICO score ranges from 300-850. There is no gold standard as to what a good score is. But as you can see from the table above, >760 gets you the best deal, either a mortgage loan or the best credit card. These are rough estimate of the score range –

How do I improve my credit score?

I have written a detailed post on how to improve your score, read that post here. Generally these are some of the ways to improve your score

• Pay your bills on time.
• If you missed payments, get current and stay current.
• Pay off debt rather than moving it between credit cards.
• Apply for and open new credit accounts only when you need them.
• Check your credit report regularly for accuracy and fix (if any) errors.
• Keep balances low on credit cards.

I would like to have more information on credit score. Can you point me where to go?

How to get your FICO & FAKO scores for free

How to improve your credit score

myFICO credit resources444

FICO forums445

Treat you score well; creditors will treat you well!

This post was included in the Carnival of Personal Finance #270 hosted by Live Now, Real.