Okay, we all know that everyone has a credit report. Hopefully you check yours regularly. But did you know that everyone has multiple credit scores?  That’s right—we have many types of credit scores.  Today, let’s focus on the 3 different credit scores that you must know.

Credit Scores: The Back Story

Before credit scores were used, the decision to extend credit to a consumer was largely based on the person’s character. This meant that even if you had a good credit history, you could get rejected if the banker didn’t like you.  Obtaining a loan was incredibly subjective.

In 1956, Bill Fair and Earl Isaac created the original automated credit scoring models, but lenders were slow to use them initially.  Credit scores didn’t become important for lenders until The Fair Credit Reporting Act was passed in 1970.  These regulations were created to help determine what kind of information could be reported and how it could be used to impact creditworthiness.  Fair and Isaac continued to refine their scoring models and today, those models have given us the FICO score.

The three major credit bureaus, Equifax, Experian and TransUnion, each compile their own credit reports. But they don’t share information with each other, so your credit report for each bureau may be different. Creditors are also not required to report to the bureaus, and many don’t report to all three, which is another reason your credit score from each bureau is different.

What Are the Three Different Credit Scores?

Each credit bureau can have different credit information for each score model.  Additionally, the bureaus have different methods of computing scores which can change periodically.  The score models can be divided into three major types: FICO, VantageScore and other types of credit scores.

FICO Scores

FICO, also known as the Fair Isaac Corporation, is currently used by 90% of the top lenders for credit decisions.  Most consumers refer to FICO when they talk about their scores.  Although FICO scores have been around a long time, customers did not have access to their credit scores until 1989.  FICO credit scores range from 300 to 850. 

The company launched FICO Score 9 in 2014, which was updated to include rental payment history and to reduce the negative impact of unpaid medical accounts and paid third-party collections.

VantageScore 

VantageScore launched its scoring model through Equifax, Experian and TransUnion in 2006 as an alternative to the FICO Score to reflect customer behavior and advances in data collection.  While FICO Scores may take 6 months to generate a score, VantageScores are created with just 1 month of credit activity.    VantageScore has score ranges that may vary.  A VantageScore 2.0, for example, has a 501 to 990 credit score range, while the 3.0 and 4.0 versions range from 300 to 850. 

The age of a credit account and the amount of debt are weighted more heavily with VantageScore than with FICO scores.

Other Types of Credit Scores

While VantageScore and FICO models are the most commonly used, they aren’t the only ones out there. Many large lenders use custom scoring models built by in-house statisticians or external third parties.  These custom scoring models allow the lender to assess an applicant’s creditworthiness for a particular type of loan.  The 6 most common customized scores used by lenders are:

A customer’s credit behaviors can be analyzed for a specific type of loan.  Thus, a customer may have a few late credit card payments but a perfect record of timely car payments.  When this customer applies for a car loan, the lender may rely on a FICO Auto Score which prioritizes car payment history.  The lender may approve the car loan because the customer pays the car note before other debts.  

How to View Your Credit Scores 

You can request your free credit reports from each bureau each year by visiting AnnualCreditReport.com.  In response to the unprecedented hardships caused by the COVID-19 pandemic, you can get your free reports weekly through April 2022.

Keep in mind that when you get your free credit reports through AnnualCreditReport.com, you only get your report and not your score. If you want to see your actual credit score, you can use various credit monitoring apps at no charge.  Many banks, credit card companies and credit unions also provide complementary credit scores to their customers.

Tips to Understand Your Scores

With so many credit scores out there, it can be hard to understand the 3 scores that lenders use most.  Instead of worrying about your scores, focus on good credit behaviors—they’ll reflect positively on you no matter which score a potential lender is looking at.  These good credit habits include:

• Consistently making your payments on time
• Avoid closing old accounts if possible
• Using less than 30% of your credit limit on revolving credit accounts
• Checking your credit report regularly
• Not opening new accounts unless it’s absolutely necessary

Your credit scores are constantly changing.  They represent a snapshot of your credit report at a particular moment in time.  In case your scores are not where you want them to be, don’t lose heart.  Credit scores can definitely improve with discipline and time.