To begin with, you have more than one credit score, and this is due to a few reasons:
- The first is that there are different scores for certain specific products. For example: there is special credit ranges used for home insurance and vehicle loans.
- There are also different models for calculating credit scores, such as FICO and Vantage Score, so you could have different scores based on each model. In fact, even the same model could generate different scores, depending on whether data from your Equifax, Experian, or TransUnion credit report is used.
- Lastly, there are several credit bureaus that provide reports to generate your scores. This means that, depending on the information that each bureau obtains from each lender (information collected may differ), the data used to compile your credit reports and calculate your scores may vary from bureau to bureau.
Taking all of the above into account, we conclude that each individual can have several scores, which sometimes do not coincide. It’s hard to pinpoint exactly how many scores you might have, but it could be hundreds. Although there are many different credit scores, it’s worth knowing the general range your scores fall in, especially since they can determine your access to certain financial products and the terms you’ll get.
FICO and Vantage Score generate the most widely used credit scores. Also, these companies update their scoring models from time to time.
The meaning of your credit score depends on the model
As you can see, the different models for calculating your score may have different ranges and calculation criteria. That means the same credit score could represent something different depending on the model a lender uses.
For example: a Vantage Score 3.0 score of 661 would place you in the “Good” range, while the same score in the FICO model would place you in the “Fair” range. Also, lenders create or use their own standards when making credit-based decisions. In other words, what one lender might consider “Very Good,” another might consider “Good.” Despite all these variations, knowing where you fall in the overall credit score range can be very valuable to you. Knowing your range in general could help you determine what financial products you are eligible for and what terms a lender might offer you.
Sometimes a few points can make a big difference
Slight daily ups and downs in your credit scores are very common and are not necessarily an indication that you are doing something wrong. Furthermore, the difference between some points may not matter. Let’s say you have a credit score of 810 and are eligible for the best rates and terms from a lender. If your score goes up to 815, it may not matter: The lender was already offering you the best deal. However, some lenders’ credit criteria require that the applicant meet a certain minimum credit score. In these cases, a rise or fall of a few points could make a big difference. Therefore, if you do not meet the minimum score, your application may be automatically rejected.
For all of this, knowing where you stand in relation to a lender’s limits, or recommended credit range, can help you identify the financial products you’re eligible for and serve as a goal if you’re working on building your credit.
Factors Influencing Credit Score
There are common traits among the different credit scoring models. For example, FICO and Vantage Score use similar criteria to determine a score. These are some of the most important factors in calculating your scores, but keep in mind that these factors are not equally weighted.
- Payment history: Shows if you pay your debts on time. Creditors always prefer people who pay on time.
- Amount owed: Indicates how much debt you have in relation to your available credit. A good rule of thumb is that your debt does not exceed 30% of your combined credit limits.
- Length of credit history: Indicates how long you have had open credit accounts. Generally, the older your accounts, the better your score.
- Combination of credits: Makes up the different types of credit that you have in your name. Lenders may want to see that you are able to handle various types of credit well.
- Recent Credit Applications: Applying for credit can result in a check that can lower your score.
Now that you know the factors that make up credit scores, you can use this information to focus on building or maintaining your scores so that your credit is favorable when you need to apply for a financial product in the future.
