Types of credit scores, jeez, how much more is there to learn?
Yes, there are many types of credit scores but don’t worry, you don’t need to understand them all in detail. What’s most important is knowing that they exist and making sure they’re all in as best a position as they can get —which we can help you with.
If you were at our Ted Talk on why you have three credit scores, you’re already one step ahead (CliffsNotes below if you were “sick” that day). If you’re looking for more details on what makes each credit score and algorithm different, keep reading.
Types of Credit Scores: The Overview
To understand the different kinds of credit scores, you have to know why they exist. You may have heard that there are only three credit bureaus, but there are actually dozens. Small credit bureaus exist across the nation, but as time goes on, these smaller bureaus get bought and taken over by larger ones.
Equifax, Experian, and TransUnion are the three largest bureaus and probably the ones you’re most familiar with. The big three bureaus run their own businesses, which is one concept to keep in mind when figuring out the different types of credit scores. You’ll see three “types” of credit scores between these three bureaus for several reasons:
- Your scores aren’t updated simultaneously: Your credit score can change at any time depending on when new information about your activity is received. To accurately compare your credit scores, it’s best to look at your credit reports from the same date.
- Not every credit bureau has the same information: Some lenders and creditors report to all three major credit bureaus, but others don’t. If your credit use is only reported to one or two bureaus, some of your scores may be calculated using less information.
- Scores are calculated using different scoring models: Because there are so many credit bureaus, there are many different credit scoring models. Each model may result in a different score. Fico vs. TransUnion, VantageScore vs. Equifax, they’re all different.
That last point is probably the most important thing to keep in mind when trying to understand the different types of credit scores. Aside from there being various bureaus that run their businesses differently, there are also different scoring models.
What Are Credit Scoring Models?
A credit scoring model determines your credit score. To clarify, a credit scoring model is an algorithm used to calculate your credit score.
The different credit bureaus will round up all of your relevant information, plug it into this algorithm, and bada-bing bada-boom, your current credit score is spit out. Here’s the part where you ask, “Why are my credit scores different then?”
Your credit scores are different because there are different credit scoring models. Each model puts a different weight on the same activity on your report. For example, one model might find your length of credit history more pertinent than another, or one might take credit inquiries from the last five years, and another will go as far as seven years back.
All of these differences make your credit scores different. We can make some generalizations about what does and doesn’t affect your credit score, but in reality, we never know the exact algorithms; those are top secret.
Even between the two basic models, VantageScore and FICO score, they have multiple iterations they use depending on the industry, year, or several other circumstances.
Let’s take a deeper look at the most popular scoring models and then go over how you can use this knowledge to your advantage.
The Most Popular Credit Scoring Models
FICO Scores
FICO score stands for the Fair Isaac Corporation score and is one of the most well-known credit scoring models. FICO was established in 1956 and has updated its algorithms over the years, so you may come across several variations like the FICO score 8 or 9.
For example, FICO Score 9 was updated to include rental payment history and reduce the negative impact of unpaid medical accounts and paid third-party collections.
The FICO score version lenders use doesn’t only depend on yearly iterations. FICO credit scores can also be industry-specific, based on the type of loan you’re applying for, customized for various specific needs, or a particular credit bureau’s data.
VantageScore Scores
VantageScore launched its scoring model through Equifax, Experian, and TransUnion in 2006 to provide an alternative to the FICO Score (adding competition, not allowing for monopolization).
The different models under VantageScore have differences in score ranges and the weight they give to credit factors. 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.
Check out the slight differences between how your credit factors look in the VantageScore 3.0 and 4.0 models:
Say you have a large outstanding balance on your credit cards; you’d be in a much better position if a lender was looking at your results from the VantageScore 4.0 model rather than the 3.0 model. 11% of your score from the VantageScore 3.0 model is determined by your balances, whereas that weight goes down to 6% with the 4.0 model.
Other Types of Credit Scores
While VantageScore and FICO models are the most commonly used, there are still others lurking out there. Some large lenders even use their own custom scoring models built by in-house statisticians or external third parties to see if you’re a good fit. Of course, these models are proprietary, and the exact formula isn’t publicly available.
To be completely honest, you’re never going to be able to grasp every single type of credit score that roams this Earth, and it’s not necessarily something that should keep you up at night. As long as you’re handling credit responsibly and have a good grasp of the basics, you should be in the clear.
The Golden Rule To Navigating Credit Scores
You can find a healthy amount of information on how the different scoring models calculate your scores, but these models are constantly changing. What isn’t changing is where the data is coming from.
No matter the credit scoring model, the information being factored in is what’s on your credit report. All of the pertinent data on your report comes from you and your activity, so ultimately, you’re in control.
Despite the credit scoring model, you can always ensure you’re making a good impression on potential creditors by creating an impressive credit-use history. Make your payments on time, keep your balance low, and don’t open a ton of accounts in a short period.
Most importantly, learn to build credit safely!
Check out the Extra blog to learn all about credit management, credit building, and credit restoration. No matter your current situation, the Credit Wizard and the Extra debit card have your back.
