Life as someone with a high credit score isn’t always a walk in the park with endless perks like free coffee or massages. It turns out there are over 60 different types of credit scores, making your impressive score perhaps not as unique as you might think.
While many are familiar with the Fair Isaac Corporation’s FICO score, which is the most widely recognized credit score, there are numerous versions of the FICO score itself. Besides FICO, there are other scores provided by different entities, often referred to as “FAKO” scores, like VantageScore, which are not affiliated with FICO.
Why So Many Credit Scores?
Think of credit scores as different recipes for apple pie. Each credit score version is like a unique recipe, and just as two chefs might bake pies differently, financial institutions might calculate credit scores differently. This diversity in credit scoring models caters to America’s love for customization and provides consumers with various financial products suited to different credit evaluations.
Understanding the Different Scores
The multitude of credit scores can be overwhelming, and it’s not necessary to know every minor detail since the exact formulas used are proprietary and kept secret by the scoring agencies. Instead, it’s more practical to understand the range of scores you’re dealing with. For instance, some scores might max out at 850, while others might go up to 900.
FICO’s Dominance
FICO scores have been the gold standard in credit scoring for decades, used in over 90% of U.S. consumer lending decisions. These scores are employed by countless businesses, including major credit card issuers and auto lenders. FICO scores are generally aimed to range from 300 to 850, and over the years, FICO has refined its scoring models to better reflect consumer behavior and to incorporate newer data types.
Tailored Scoring Models
FICO provides specific scores for different types of lending — mortgages, car loans, credit cards, etc. — because the financial risk associated with each type of lending varies. Additionally, FICO has developed unique scoring models for each of the three major credit bureaus: Experian, Equifax, and TransUnion.
Innovations in Credit Scoring
The FICO Score 9, the latest version, has reduced the negative impact of medical debt on credit scores, acknowledging that medical expenses can be unexpectedly high and not necessarily indicative of financial irresponsibility. This change could mean an increase of about 25 points for consumers whose only major derogatory marks are from medical debt.
The Reality of Credit Score Updates
Even with new models like the FICO Score 9, not all lenders quickly adopt the latest versions. Many continue to use older models because updating systems can be costly and time-consuming.
What Doesn’t Impact Your Credit Score?
Several personal factors do not affect your credit score, including your income, employment history, marital status, and whether you receive public assistance. Understanding what impacts your score can help you focus on maintaining healthy credit habits.
Regular Checks Are Crucial
It’s advisable to check your credit score annually. This routine check-up can help you catch inaccuracies or instances of identity theft early on, much like a regular health screening.
Leveraging Good Credit
Knowing your credit score and understanding the landscape of credit scoring can help you make informed decisions, particularly if you’re considering refinancing your mortgage to take advantage of lower interest rates.
By keeping these points in mind, you can navigate the complex world of credit scores more effectively, ensuring that you maintain a solid financial footing.
