So Many Credit Scores – How do Consumers Manage?

Your credit score is an important factor that can affect your ability to buy a home, get a loan, open a credit card, receive a good interest rate and even get a job or insurance. When considering your credit score, you should be aware that there is more than one score and there is more than one type of score. Just like credit reporting agencies, different companies offer different scoring models for different purposes. In fact, there are hundreds of different credit scores out there, some specific to the different credit reporting agencies and others specific to the type of loan you are applying for.

 

What is the purpose of a credit score?

Even though there are hundreds of credit scores to choose from, a few scoring models are more commonly used by lenders when you are applying for credit. Your credit score is a number calculated based on the information included in your credit report. This number stands for the level of risk you present to a lender. The higher your credit score, the more likely it is a lender will approve you for a loan.

There is an endless number of credit scores. Equifax, Experian and TransUnion are three major credit bureaus. Each of the three major credit reporting agencies composes their own credit reports. Each also has concocted its own version of a credit score. As these companies do not mirror each other’s information, your credit score will be different for each of the three agencies. Equifax, Experian, and Trans Union calculate your scores using two main scoring models, FICO and VantageScore.

 

FICO vs. VantageScore

FICO of Fair Isaac was first introduced in the early 1950s by Bill Fair and Earl Isaac. While the scoring model was originally unsuccessful, it was eventually perfected in the late 1980s and became the most well known and commonly used credit score today. There is more than one FICO score. FICO scores can be specific to the type of loan or credit you are applying for and this scoring model has close to 50 different types of scores. Similarly, VantageScore introduced in early 2000, became an alternative to FICO to keep up with the changes in our economy.

 

What consumers should focus on

As there are so many different scores, and one never really knows what specific score model a specific creditor may use, it makes it difficult for consumers to know how to manage their credit scores. Because of this, we typically advise consumers not to focus on the scores. The score will be whatever the credit report data allows it to be. A score is nothing more than running the information on your report through a complicated algorithm. You can’t change the algorithm, you can only change what goes into it. Thus, a consumer should focus on the report data – the accounts and information – and see to it that the information is correct. Correcting bad errors can help any score increase.

Understanding the different types of credit will help you keep your credit in check. If you believe your rights have been violated and you would like the advice or assistance of counsel, contact SmithMarco P.C. for a completely free case review.

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