First, let’s clear up a common misconception about credit scores. It’s often thought that you have just one singular score, or one for each of the three credit bureaus. The truth is that you actually have many credit scores. This is due to a number of factors:
3 Major Credit Bureaus
There are three major credit bureaus — Experian, Equifax, and TransUnion — and the information on your credit reports isn’t always identical. Some lenders may report to just one or two of the bureaus, for example. Also, the bureaus don’t get your updated information at the same time. So let’s say you get a new auto loan — you might see it on one report right away, but not on the others for another reporting cycle. This leads to score variation within the three reporting agencies.
2 Main Models
There are also two main credit scoring models — FICO (Fair Isaac Corporation) and VantageScore. Both scores range from 350-850. They measure the same factors, but weight them slightly differently. For both models, paying your bills on time and managing your credit utilization (amounts owed) have the biggest impact. Check out this handy infograph on what affects a FICO score »
Should I Purchase My Credit Score?
Each scoring model — FICO and Vantage — has multiple versions that are updated periodically to align with consumer habits. They also offer scores tailored to specific loan types, such as a credit card, home, or auto loan. The lender chooses which to use. While the credit bureaus and Fair Isaac & Co (FICO) are happy to sell you a score, it won’t be the score your lender sees. The score you purchase is a “consumer score” designed for education purposes.
Many financial institutions and other services provide a free “on demand” credit score for educational purposes. This score acts as a general barometer of your credit worthiness and can give you an idea of what to expect when it’s time to get a loan, or help you track your progress if you’re working on improving your credit ahead of your next loan. Typically, this score includes a disclosure stating the credit bureau referenced and the credit scoring model used, as well as a note that a different credit score may be used for lending decisions.
How Can I Maintain or Improve My Credit Health?
First, consistently pay your bills on time. Setting up automatic payments can help ensure you never miss a due date. Next, manage your credit utilization, which is the amount of credit used compared to your credit limit. Using 30% or less is good for your score. If you typically use more than 30% of your card’s limit during the month, consider making a mid-month payment to keep your balance low or asking your card-issuer to raise your limit. Finally, it’s important to download your free credit report from all three bureaus each year at www.AnnualCreditReport.com (the only service authorized by Federal Law). Review your report for accuracy and correct any errors. The FTC reports that one in five people find errors, and correcting them may significantly raise your credit score, which earns you better rates and prevents delays when you apply for your next loan or credit card. Learn how to correct errors on your credit report »