Do you find yourself confused as to why you have so many different credit scores? You’re not alone—many consumers have multiple credit scores, each of which can vary quite a lot. But why are there so many different credit scores, and what do they mean?
In this article, we’ll explain what credit scores are, what different types of credit scores exist, why you have multiple credit scores, and how to make the most of your credit information. Read on to gain a better understanding of your credit score.
What Is a Credit Score?
A credit score is a three-digit number that is used to measure your creditworthiness. This number is used by lenders to determine whether you are likely to pay back a loan, credit card balance, or other type of debt in a timely manner. A lender will look at your credit score as well as other information about you when deciding whether to offer you a loan or other form of credit.
Essentially, your credit score is a reflection of your ability to manage debt. The higher your credit score, the better your chances of obtaining a loan, mortgage, or other form of credit at favorable terms. Lower credit scores can make it more difficult to get a loan—or can mean you should pay higher interest rates.
What Different Types of Credit Scores Are There?
There are several different types of credit scores. One of the most widely used credit scoring models is the FICO score, which ranges from 300 to 850. Higher FICO scores indicate that a borrower is a lower risk and more likely to repay a loan on time.
Other credit scoring models include the VantageScore, which ranges from 300 to 850, and the Experian National Equivalency Score, which ranges from 360 to 840. There are also industry-specific credit scores, such as the auto industry’s Auto Enhanced score and the mortgage industry’s Empirica score.
Why Do I Have So Many Different Credit Scores?
Your credit score is determined using information from your credit report, which is used by financial institutions when evaluating a potential borrower. Each of the three major credit bureaus, Equifax, TransUnion, and Experian, gathers and analyzes different information when compiling a credit report. This means you may have slightly different credit scores depending on which credit bureau is used.
In addition, there are different credit scoring models used by lenders and financial institutions. Some lenders may prefer to use the FICO scoring model, while other lenders may prefer to use the VantageScore, for example. This means that you may have several different credit scores, as each credit scoring model takes into account different pieces of information on your credit report.
Finally, certain types of lenders, such as automobile lenders, may use their own internal credit scoring system. These types of credit scores are typically not available to the public, but they’re used to determine whether you qualify for the loan you’re seeking.
How to Make the Most of Your Credit Information
Although it can be confusing to have multiple credit scores, having a variety of credit scores can be helpful. By ensuring that you have good credit with each of the three major credit bureaus, you’ll have more opportunities to take advantage of favorable loan terms.
To make the most of your credit information, it’s important to maintain a good credit history. Make sure to pay your bills on time, keep your credit card balances low, and don’t take out more credit than you need. Additionally, consider monitoring your credit history with a service such as CreditKarma, which automatically updates you with your three-bureau credit score on a monthly basis.
Having multiple credit scores can be confusing—but it doesn’t have to be. By understanding the different types of credit scores, why you may have several scores, and how to make the most of your credit information, you can get a better handle on your financial situation. Doing so will help you to secure favorable terms on future loans and make sound financial decisions.