Did you know you have many credit scores?
When you obtain your credit score, you are getting a generic score. Your lender, however, will most likely receive a different number specific to its industry.
At the heart of the consumer credit reporting industry are the three major credit reporting bureaus: Experian, Equifax and Transunion. These three companies collect data on you. This information is then analyzed by other companies to calculate your credit scores, a measure of your credit risk. The formulas these companies use are complex and closely guarded industry secrets. These secret formulas are computer programs called “scoring models.”
FICO and VantageScore are two major companies that calculate credit scores.
FICO (Fair Isaac, and Company
FICO began providing credit scores in 1989. Consumer FICO scores range from 350 to 850. A perfect score is 850. A good credit score is 720 and above. FICO also produces industry-specific credit scores. These scores range from 250 to 900. Each score is customized for the type of credit you seek including auto loans, credit cards, mortgages, and retailer credit.
VantageScore was created by the three credit bureaus in 2006 to compete with FICO. Its credit scores are sold to banks, lenders and other credit issuers by VantageScore Solutions, LLC. While FICO has the majority of the credit score business, Vantage is gaining market share. Vantage scores range from 300 to 850.
Regardless of whether a lender or creditor uses FICO or VantageScore, the goal is the same: to predict the likelihood of you falling behind on paying a bill within the next 24 months.
You also have a credit score for insurance and a specialized report for mortgages.
Credit-based insurance scores range from 200 to 997, and are only one of the many factors companies are allowed to use to determine your premiums.
Insurance scores differ from regular credit scores.
- A regular credit score is used to determine the likelihood of you repaying a loan or other credit. These scoring models look at many different factors to determine your score.
- A credit-based insurance score is used to predict the likelihood of you filing an insurance claim. Some, but not all, factors in your credit history are used to determine your score. Statistically, people with high scores are less likely to file claims.
Insurance scores are used to calculate premiums for automobile, homeowners, renters, motorcycle, boat, and RV insurance. Not all states permit the use of insurance scores, and not all insurance companies use them. FICO is one company that generates credit-based insurance scores.
Residential Mortgage Credit Report
When you apply for a mortgage, the lender wants your credit report from each of the three credit bureaus as well as your credit score. If you are applying jointly with one or more people, the mortgage lender wants the three credit reports and scores for each applicant. This results in a lot of redundant information which is time consuming to read and synthesize.
Enter mortgage reporting companies. Mortgage lenders subscribe to their services. When the lender needs your and your co-applicants’ credit information, the mortgage reporting company buys your credit reports from each of the three credit bureaus and your FICO scores. It then consolidates all the information into one credit report, called a “RMCR,” a Residential Mortgage Credit Report. Many lenders will give you a copy of your RMCR.
Improve or Maintain Your Credit Score
Regardless of the type of credit score used or which company produces it, the things you can do to improve your credit score or maintain a good score remain the same:
- Pay your bills on time.
- Maintain low credit-card balances.
- Apply for credit only when you really need it.
- Dispute any incorrect information in your credit reports.
Obtain Your Credit Reports and Scores
You can obtain your credit reports for free at annualcreditreport.com. While these reports do not include your credit score, they show your credit activity over the past several years. You can also print a “Manual Request Form” to request your reports by mail.
You can get your FICO score at myfico.com. FICO sells generic scores to consumers. There is a fee. Industry specific scores are available only to the lender.
You can get your Vantage score for free from many services. Two that are frequently recommend are Credit Karma, and Credit Sesame. Other options are listed at your.vantagescore.com.
This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice. Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.