Not all credit scores are created equal
BROOKINGS — Have you ever gone to a website and gotten your credit score? If so, what you see may not be the same as what a bank sees, explained Carrie Johnson, SDSU Extension Family Resource Management Specialist.
“Believe it or not you have multiple credit scores and they may vary a little or even a lot,” she said.
Johnson explained that when you apply for credit from a lender, chances are they will pull your FICO Score. The FICO Score was created by the Fair Isaac Corporation and is the most widely used (90 percent of lenders rely on the FICO Score). This score is based solely on information found in your credit report and ranges from 300 – 850. The calculation is determined based on five categories: 1) payment history; 2) amounts owed; 3) length of credit history; 4) new credit; and 5) types of credit used.
“Each credit reporting agency has a different FICO Score dependent upon the information in that agency’s credit report for a specific person,” Johnson said. “All of the scores, however, are developed using the same methods by Fair Issac, and have been rigorously tested to ensure they provide the most accurate picture of credit risk possible using credit report data.”
Since the three scores can vary, some lenders will use the middle score, which Johnson said is sometimes referred to as the ‘representative’ credit score. “For example, if your three FICO scores are 680, 530, and 620 your middle score is 620,” she said.
There are a variety of non-FICO Scores available as well that some lenders and insurers use. Johnson reminded readers that many insurance companies will check your credit as well and your premium may be affected by a low credit score.
“Since there is such a range of credit score, ranges of a score with one agency may be different than a score with another,” Johnson said. “Just because a lender may not elect to use one of these particular scores, does not mean that they don’t matter at all. The majority of these were developed with the consumer in mind and are for educational purposes.”
The score at any given date may not be exactly what you are looking for, but Johnson said tracking your score over time will give you an idea of how you are doing. “So, if you are trying to improve your credit score select one of the scores and monitor it from month-to-month to see if your score increases or decreases,” she said.
To learn more, visit iGrow.org.