Credit Scores

What is a Credit Score?

A credit score is a measure of risk used to assess an individual's credit worthiness. Credit scores are generated from statistical models that weigh several factors in a person's credit record, like bill-paying history, the number and type of accounts, late payments, collection actions, outstanding debt, and the age of accounts. A credit scoring system awards points for each factor. A total number of points make up a credit score. This score helps predict how likely it is that an individual will repay a loan and make the payments on time.

The most common credit score used today is the FICO score. Each of the three credit bureaus calculates a FICO score and makes those scores available to lenders and creditors that want to understand the risk they are taking if they decide to lend money, extend credit, or even waive a deposit.

Different Credit Scores

Credit Scores are somewhat confusing because the credit bureaus sell FICO credit scores under different names. Each of the three credit reporting agencies collect information differently from one another and converts data into credit scores differently. Therefore, you have three different credit scores.

The bureaus also sell their own, very different credit scores. FOr example, Experian has a scoring product called the PLUS score which is different than a FICO score. The three credit-reporting companies also jointly introduced another credit score, called VantageScore to compete with FICO's score.

What is a Credit Score Called a FICO Score

A FICO score is one type of credit score. Any credit score obtained using the Fair Isaac formula is called a FICO score. FICO scores are the credit scores most lenders use to determine your credit risk. Your FICO score is the most important factor in determining what rate you will pay when you borrow money. The higher you improve credit score the more room you have to negotiate a lower interest rate. FICO scores range from 300 to 850. The score that a lender will accept depends on the type of loan you're applying for.

Though Fair Isaac does not reveal the details of their formula, it is largely based on five factors; Payment History, Amount Owed, Length of Credit History, Recent Inquiries and Types of Credit in use.

How a FICO Score Breaks Down

Other Credit Scores

You can get a general picture of whether you have good credit or bad credit from any of the credit scores below. Keep in mind, these scores will be different than your FICO scores and different from each other.

• Experian Score PLUS
  In 2009, Experian pulled out of its agreement with Fair Isaac and stopped providing a FICO score to its customers. Experian offers a Score PLUS which has a score range from 330 to 830.
• Vantage Score
  VantageScore was jointly developed in 2006 by TransUnion, Experian, and Equifax as an alternative of the FICO score, to make credit scores easier to understand. Although the three credit bureaus can now generate scores using the same credit scoring model, you may see differences in the actual scores because each bureau maintains its own consumer credit files, which may vary. VantageScore ranges from 501 to 990, and the score is divided into five grades, from "A" to "F" with "A" being the best. VantageScore is available from TransUnion and Experian.
• TransUnion TransRisk Score
  TransRisk is a consumer credit score that's developed by TransUnion, one of the three credit bureaus. TransRisk scores simulates FICO score, but it isn't a FICO score. The score has a range from 300 to 850, the same as the range of the FICO score. You can get TransRisk score for free from Credit Karma.

Your credit report drives all the numbers in your credit scores, so if you improve credit report it will make all your credit scores go up.