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Jar of change labeled CREDIT
Jar of change labeled CREDIT

What You Should Know About Your FICO Score

Sarah Netter

You credit score (aka FICO score) holds the key to your mortgage payment, your car payment and the interest rates on your credit cards and student loans.

How those scores are calculated and the differences between scoring models, including credit score giant FICO, remains shrouded in mystery for many consumers. But it doesn’t have to be confusing or complicated.

We spoke with Rod Griffin, director of consumer education and awareness at Experian, who answered the most common questions about FICO and credit scoring.

Is a FICO score the same as a credit score?

The short answer is yes. FICO is the oldest, largest and most recognized credit scoring company. Founded in 1956, FICO quickly became a trusted way for lenders to measure consumer risk.

“FICO is the dominant scoring company, the best known brand in the scoring world,” Griffin said.

But while FICO is a household name, it is simply one credit scoring company among many.

“FICO score is kind of like saying Kleenex,” Griffin said. “It’s synonymous with credit score. But a credit score can come from a number of different sources and developers.”

Each scoring company develops their own algorithms, “and they may have different scales.  There are lots of different scores,” Griffin said.

What other companies give credit scores?

FICO remains the biggest and most popular credit scoring company but VantageScore, a relatively young credit scoring company launched in 2006, has quickly become a major competitor and is now in the No. 2 slot among lenders.

“A credit score is any algorithm that is used to analyze the risk represented by the information in a person’s credit history of them defaulting,” he said.

There are also many other, smaller credit scoring companies other than FICO and VantageScore. And some lenders may come up with their own scoring models.

“At Experian we have in our system, something over 200 scores that we can apply,” Griffin said.

So if someone wants to run a credit report through a specific scoring algorithm that’s stored in the Experian computer database, they run a person’s credit report through that particular scoring model and get a score.

How do the credit bureaus know which credit score to put out?

It is a common myth, he explained, that credit bureaus create your credit score. The three main credit bureaus — Experian, Equifax and TransUnion — are actually the keepers of the credit report that is used to compute your score, but not the score itself.

FICO, VantageScore and the other scoring companies own the algorithm used to generate the numbers that make up your credit score and they contract with the credit bureaus to run credit reports through their proprietary scoring model.

“The credit bureaus don’t make determinations about the information in the report,” Griffin said. “We don’t determine whether it’s good or bad, whether you should qualify or not.”

Griffin describes it like a school paper.

“We’re the paper,” he said of Experian and the other credit bureaus. “We represent the school paper, credit scores represent the grade and the teacher is kind of like a lender in the middle.”

Are there different types of scores for different types of loans?

Absolutely. Not only are there many different scoring companies, each company can have multiple different scoring algorithms.

FICO 8 is the most popular credit score in the world. It ranges from 300-850.

“There are different scores for different types of lending, so there’s not just one FICO score — another common myth,” Griffin said. “There are also FICO scores specifically for auto lending and there are FICO scores specifically for mortgage lending.”

“There are custom scores specifically for credit card offers,” he added. “There are scores that are specifically designed for a credit union to use as opposed to scores for national bank because their customer base is different and the things that represent the risk are different.”

If I have a good FICO score, will I have good VantageScore number?

Because all credit scores rely on the information in your credit report, such as your debt amount and your payment history, your scores across the different scoring models should all be generally in the same ballpark.

“If you take care of your credit report, all of your scores will take care of themselves because they’re going to reflect that information,” Griffin said.

Griffin said he purchases four or five different credit scores throughout the year and keeps tabs on the information in his report. His scores usually have a range of about a 100-point difference due to the different algorithms used to create each score.

“You will see similar scores, but very rarely would you see exactly the same score from VantageScore and FICO,” he said. “But that’s okay, because what you will find is that if you have a good score in one system you will have a good score in the other.”

Will student debt affect my credit score?

Your credit report treats your student loans like any other installment loan, such as a car payment.

“If you’re making those loan payments on time and it shows that positive history, they’re going to help your credit history in your credit scores,” Griffin said. “Fall behind and unable to pay the student loans, that’s going to hurt your credit scores.”

What can I do to raise my credit score?

Griffin said there are “two universal truths” to earning and keeping a good credit score.

First and foremost, he said, “you have to pay your bills on time every single time. Late payments will hurt your credit scores more than anything else.

Late payments, which are considered late when they haven’t been paid by the end of the 30 day billing cycle, he said, make an “immediate and significant impact to your scores.”

The second, he said, is called the utilization rate, which is your credit card balance to credit limit ratio. Someone with a zero credit card balance or a low credit card balance and a high credit limit will get a better score than someone who keeps their cards maxed out.

“Keeping your balances as low as possible on your credit cards is the second most important factor in credit scores. And that’s across the board. You never want your balances to be more than 30 percent of your credit limits,” he said. “The lower the better. People with utilization rates of less than 10 percent have the best scores.”

And whether you are building good credit or repairing mistakes, remember it takes time.

“There is no quick fix,” he said.

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