You Have More Than One Real Credit Score
While everyone talks about their credit score as if it is a single number, you actually might have more than a thousand of them.
Credit scores are generated by many companies but two are the best known: Fair Isaac and VantageScore. Fair Isaac uses a proprietary formula to generate your FICO score, while VantageScore, which was developed by the credit reporting agencies Equifax, Experian and TransUnion, uses a different formula to generate the eponymous VantageScore.
But just because there are two main companies generating your credit score, that doesnt mean you only have two scores. At any given time, you have multiple FICO scores as well as multiple VantageScores, because credit reporting agencies, mortgage issuers and credit card companies all generate scores of their own, some of which are based on your FICO or VantageScore.
For example, Citi uses the FICO Bankcard Score 8 model, which is scored on a scale of 250 to 900 and is based on data from Equifax. The latest VantageScore, in contrast, uses a different scale, of 300 to 850.
Why do we need so many credit scores? Because different lenders focus on different factors in determining the likelihood that a consumer will default on a loan. Companies and lenders have created different credit scores to account for those differences and adapt them for their needs, said Bethy Hardeman, a chief consumer advocate at Credit Karma.
Which Credit Bureau Is Most Important When Buying A House
The most important credit bureau or score when buying a house is the one your lender will utilize to change an underwriting decision for a loan application.
Because of the large loan amounts, mortgage companies typically use all three bureau reports. The outlier, if any, could be the one to change approval to a denial.
Therefore, you should focus on identifying the agency that reports an adverse trade line that does not appear on the files of the other two bureaus.
As you will shortly learn, this one anomaly could impact your Tri-Bureau merged report and make the middle credit score lower than it might otherwise be.
What Are Credit Scores Used For
Lenders and landlords will review your credit score to determine how likely you are to repay a loan or keep up with rental payments. Your credit score can affect everything from your ability to qualify for a loan to your ability to rent an apartment. Its also one of the most important factors that determine the interest rates youll receive, which can affect your overall cost of financing.
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What Is The Most Accurate Credit Score
Approximately 90% of all U.S. lenders use the latest version of the FICO credit score. Even if they use a similar scoring model, credit scores from other companies can vary by up to 100 points from this score. So, its a good idea to monitor your FICO score since thats the one most lenders will check.
The other most accurate scoring model is the VantageScore 3.0. Keep an eye on this score as well if youre looking into loans or other financial products.
The basic FICO credit score range is 300 to 850.
- 300 to 579 : Most lenders will reject applications from borrowers with a score in this range.
- 580 to 669 : Some lenders will work with consumers with fair credit. However, interest rates will be higher, and the loan amounts will often be lower.
- 670 to 739 : The average consumer has good credit and can qualify for most loans or credit cards. The interest rates are usually middle-of-the-line.
- 740 to 799 : Consumers with very good credit qualify for most loan products with decent rates.
- 800 to 850 : Around 18% to 20% of people have excellent credit. They are eligible for the best rates and their applications are rarely rejected.
How Much Can You Borrow With 720 Credit Score
With fixed-rate conventional loans: If you have a credit score of 720 or higher and a down payment of 25% or more, you don’t need any cash reserves and your DTI ratio can be as high as 45% but if your credit score is 620 to 639 and you have a down payment of 5% to 25%, you would need to have at least two months of …
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How Is My Credit Score Calculated
While the idea of credit scores is simple, the way theyre determined is more complicated.
While we know generally what factors into the credit scores, the agencies dont share their specific formulas with the public. But each produces a slightly different score.
One is scoring like a basketball game, one is like a football game and one is scoring like a hockey game, said McCreary, who added that you shouldnt worry if one agency gives you a few points less than others.
Since you dont know which agency your lender is going to use to check your credit score, McCreary also recommends that you check all three of them before requesting a large amount of credit.
Here are the factors that are frequently used to calculate your credit score:
- Bill payment history
- How much of your available credit youre using
- New credit requests
- If you have had debt sent to collection, foreclosure, or a bankruptcy
One thing that doesnt affect your credit score is how much money you make, said McCreary. But you still need to take care to only borrow the amount you can afford to pay back.
Other aspects that dont affect your credit score include your age, where you live and your demographic information such as race, ethnicity, and gender, according to Experian.
Why Are Credit Scores Important
Good credit scores give you access to favorable deals on credit cards, loans, housing, insurance premiums, and more. In contrast, a bad score results in you paying more for these products. Higher interest rates and other costs related to bad credit scores add up over the years. Credit scores play an essential role in your financial life. So, you need to monitor it and take actions to maintain, improve and leverage your scores.
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Why Having A Good Credit Score Is Important
In general, having good credit can make achieving your financial and personal goals easier. It could be the difference between qualifying or being denied for an important loan, such as a home mortgage or car loan. And, it can directly impact how much you’ll have to pay in interest or fees if you’re approved.
For example, the difference between taking out a 30-year, fixed-rate $250,000 mortgage with a 670 FICO® Score and a 720 FICO® Score could be $72 a month. That’s extra money you could be putting toward your savings or other financial goals. Over the lifetime of the loan, having a good score could save you $26,071 in interest payments.
Additionally, credit scores can impact non-lending decisions, such as whether a landlord will agree to rent you an apartment.
Your credit reports can also impact you in other ways. Some employers may review your credit reports before making a hiring or promotion decision. And, in most states, insurance companies may use credit-based insurance scores to help determine your premiums for auto, home and life insurance.
Why There Are Different Credit Scores
For example, VantageScore creates a tri-bureau scoring model, meaning the same model can evaluate your credit report from any of the three major consumer credit bureaus . The first version was built in 2006. The latest version, VantageScore 4.0, was released in 2017 and developed based on data from 2014 to 2016. It was the first generic credit score to incorporate trended datain other words, how consumers manage their accounts over time.
FICO® is an older company, and it was one of the first to create credit scoring models based on consumer credit reports. It creates different versions of its scoring models to be used with each credit bureau’s data, although recent versions share a common name, such as FICO® Score 8. There are two commonly used types of consumer FICO® Scores:
- Base FICO® Scores: These scores are created for any type of lender to use, as they aim to predict the likelihood that a consumer will fall behind on any type of credit obligation. Base FICO® Scores range from 300 to 850.
- Industry-specific FICO® Scores: FICO® creates auto scores and bankcard scores specifically for auto lenders and card issuers. Industry scores aim to predict the likelihood that a consumer will fall behind on the specific type of account, and the scores range from 250 to 900.
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Manage Your Credit Card Responsibly
If you werent denied, now youve got your credit card. Congratulations! Next up is managing your credit card responsibly so you can get the full benefits without any of the drawbacks. There are three main factors to consider here: on-time payments, minimum payments, and credit utilization. Lets dive in.
Which Score Is More Accurate
Neither score is more or less accurate than the other theyre only being calculated from slightly differing sources. Your Equifax credit score is more likely to appear lower than your TransUnion one because of the reporting differences, but a fair score from TransUnion is typically fair across the board.
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How Do You Check Your Credit Report
On AnnualCreditReport.com you are entitled to a free annual credit report from each of the three credit reporting agencies. These agencies include Equifax, Experian, and TransUnion.
Due to the COVID-19 pandemic, many people are experiencing financial hardships. To remain in control of your finances, you can get free credit reports every week through April 2022.
Request all three reports at once or one at a time. Learn about other situations when you can request a free credit report.
Request Your Free Credit Report:
By Mail: Complete the Annual Credit Report Request Form and mail it to:
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281
If Your Request for a Free Credit Report Is Denied:
Contact the CRA directly to try to resolve the issue. The CRA should tell you the reason they denied your request and explain what to do next. Often, you will only need to provide information that was missing or incorrect on your application for a free credit report.
If you can’t resolve your dispute with the CRA, contact the Consumer Financial Protection Bureau .
What Affects Your Fico Score
While FICO doesnt reveal its scoring formula, it gives useful guidelines about the factors that matter for scores. As you can see, paying on time and keeping balances low account for about two-thirds of your score:
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Payment history : Late payments can really hurt your score, as can accounts in collections or a bankruptcy.
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Amount of debt relative to credit limits : This is how much of your available credit you are using the less, the better for your score.
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Age of credit : This refers to how long youve had credit and the average age of your credit accounts.
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Recent applications for credit : A so-called hard inquiry when you apply for new credit can nick your score for up to six months. That’s why it’s important to research credit card offerings and eligibility requirements before applying to one.
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Whether you have more than one type of credit : Having both installment loans and revolving credit can help your score.
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How Can I Improve My Credit Score
The journey to improve your credit score is different for everyone. But some steps that can help you tackle credit card debt include paying at least the minimum monthly payment and, if you can, paying just a bit more over the minimum so you pay less interest over time.
Additionally, McCreary recommends that you try to keep a balance between your credit or loans and the amount you can afford to pay back.
What Is Credit History
The credit history is a blueprint of consumers payment history. Lenders report the payment history of consumers to each of the credit reporting agencies. Lenders can quickly determine if any late payments have occurred on open and closed accounts in the past 7 years. Lenders are not too happy about consumers who have late payments appearing on their credit report. Lenders can also quickly determine the length that consumers have had the credit. The lenders view the accounts that have been open for the longest period of time as positive aspects of credit history.
Lenders also want to see a good mix of credit in the . Consumers should have a balance of revolving debt and installment debt for lenders to consider them for a line of credit. It is also very important to remember not to max out the revolving debt because doing so will lower a credit score.
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What Factors Determine Your Vantagescore
VantageScore takes into account five different factors including payment history, credit age/type, percent of credit used, recent credit behavior/ available credit, and total balance owed. The score breakdown below shows you how each factor affects your score. Note that VantageScore has slightly different weights than the FICO:
- Payment history: 40%
- Age and type of credit: 21%
- Perfect of credit used: 20%
- Total balance owed: 11%
- Recent behavior and available credit: 8%
Payment history is more heavily weighed in the VantageScore and your mix of credit is more important than the total balance of your debt. Having a mix of revolving and installment debts and making payments on time make up 61 percent of your total score.
Can My Boss See My Credit Score
No. Potential employers may check your credit history, but your boss cannot check your score. The report they see isn’t the same as the one lenders see.
Any inquiry your employer makes is a soft inquiry, also known as a soft pull, so it won’t affect your credit score. The report your employer sees is called an “employment screening,” and it does not contain personal information like your birthdate.
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Interest Rates Are Higher On A Whole
In the wake of interest rate hikes on the part of the Federal Reserve, borrowing rates across pretty much all loan products are up. That means you might pay more interest on a personal loan, auto loan, or credit card. You don’t want to make that situation even worse by being a borrower with poor credit.
See, lenders tend to reward borrowers with strong credit with lower borrowing rates. But if your credit is poor, you might get stuck with an unfavorable interest rate on your next loan.
Meanwhile, the Fed isn’t done raising interest rates. So as costly as borrowing is right now, things could get worse in the coming months.
Why Your Credit Score Is Different From Your Credit Report
The relationship between your credit report and credit score is that the former creates the latter. Your credit report ultimately contains the information that will go into calculating your credit score.
Your credit score is a three-digit figure, so its great for quickly determining your responsibility as a borrower. However, your credit report gives a more in-depth look into the makings of your credit score and can provide more detailed information.
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Is Experian Better Than Credit Karma
While Experian compiles your credit report and determines your credit score, Credit Karma simply shows you credit scores and report information from Equifax and TransUnion.
Think of it this way Credit Karma is like a newspaper that writes about the credit scores other companies give you. But we have no influence over your scores.
Why The Down Payment Matters Just As Much As Your Credit Score
A 20% down payment saves you from paying PMI on a conventional mortgage.
The Consumer Financial Protection Bureau warns that PMI is meant to protect the lender not the buyer. From a lending perspective, a buyer who doesn’t put 20% toward their home puts more liability on the mortgage company since they are borrowing more money.
And unlike your mortgage bill, your monthly PMI payment never goes toward paying off the cost of your home. This means you’ll be paying more money each month but not getting any closer to paying your house off.
Another helpful reason to save up for a larger down payment is to influence the size of your mortgage: “In essence, a bigger down payment may allow you to buy a higher priced home,” Gage tells CNBC Select.
The more equity you have in a home, the lower the risk for default. This lower risk can then translate into a more favorable rate for the borrower.
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How To Improve Your Credit Scores
To improve your credit scores, focus on the underlying factors that affect your scores. At a high level, the basic steps you need to take are fairly straightforward:
- Make at least your minimum payment and make all debt payments on time. Even a single late payment can hurt your credit scores and it’ll stay on your credit report for up to seven years. If you think you may miss a payment, reach out to your creditors as quickly as possible to see if they can work with you or offer hardship options.
- Keep your credit card balances low. Your is an important scoring factor that compares the current balance and credit limit of revolving accounts such as credit cards. Having a low credit utilization rate can help your credit scores. Those with excellent credit scores tend to have an overall utilization rate in the single digits.
- Open accounts that will be reported to the credit bureaus. If you have few credit accounts, make sure those you do open will be added to your credit report. These could be installment accounts, such as student, auto, home or personal loans, or revolving accounts, such as credit cards and lines of credit.
- Only apply for credit when you need it. Applying for a new account can lead to a hard inquiry, which may hurt your credit scores a little. The impact is often minimal, but applying for many different types of loans or credit cards during a short period could lead to a larger score drop.