It can be confusing to understand just how your credit score is compiled, and just how those scores will be used. If you’re in the market for a new home, your FICO score isn’t the only number to focus on. It’s the score your lender uses that is the most important. Here are some tips and facts about credit scores to help you understand what you need to know.
There is No “One” Score Number
Lenders are allowed to customize their FICO system, so different lenders can compile very different scores. In addition, each of the credit bureaus – Experian, Equifax and TransUnion – has their own scoring model. Not only that, but those three credit bureaus teamed up several years ago to create a competitor to FICO called VantageScore.
VantageScore vs. FICO
You can score anywhere from 300 to 850 on the FICO scoring system. A score of 760 or better is what you’ll need to secure the best rates for a mortgage, but you’ll only need a 720 to get the best auto loan. On the other hand, VantageScore ranges from 501 to 990, with corresponding grades of A through F. If you score a 900 or above, you earn an “A” and have access to the best rates. If you don’t get the loan you applied for, the lender must alert you to the score it used as well as any other factors that may have given you a low score. About 10 percent of lenders use VantageScore.
Be vigilant about your credit checkups
It is important that you monitor your own credit score. You can request a free credit report annually from all three credit bureaus. These can be requested at www.annualcreditreport.com. These reports will not include your credit score, however. You’ll pay $8 each to get the credit bureau’s number. But if your in the market for a loan, it’s your FICO score that you’ll want to see, as most lenders still use this system. You can request your credit report and FICO score for $20 at www.myfico.com.
Beware the fine print
Some websites will offer you free estimates of your FICO score and VantageScore along with Experian’s PLUS score. Be aware that you’ll be given your “free” score only if you sign up for a free trial subscription to a credit-monitoring service. If you don’t cancel within a certain amount of time (usually seven days) you are charged for monthly service.
Keep credit healthy practices
No matter which credit bureau is reporting your score, they all measure the same thing: how credit worthy you are. A good rule of thumb is to keep your credit utilization rate low – the amount of debt you have compared to the amount of credit you have available. Also maintain a history of paying your bills on time. Having a variety of loans, such as home and auto, and credit cards will also boost your score.
Scores constantly change
Keep in mind that the information the credit bureaus keep about you is constantly changing, which means so will your credit score. If you are applying for a loan, check your reports for any mistakes and pay down existing loan and credit card balances as much as possible.
By keeping in mind these tips and facts about your credit score, you’ll be informed and ready for when you want to make any big ticket purchases.