Making Sense of Credit Scores Once and For All

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Making Sense of Credit Scores Once and For AllThere’s a lot of mystery behind the three-digit number we call our credit score. How is it calculated? Where do we find it? How do we improve it? And if we have more than one, which one matters most? It’s time to clear up the confusion and make sense of credit scores once and for all, an understanding that will prove invaluable whether you’re trying to repair bad credit or simply make good credit better.

Difference between credit scores and credit reports

A common misconception is that credit scores and credit reports are the same thing. While they are related – and both are used to evaluate creditworthiness – they are two separate credit rating tools:

  • Credit reports are documents of your credit history. They list who your creditors are and your history with those accounts (e.g., when they were opened, your credit limit, your balance, timeliness of payments, collections, charge-offs, etc.)
  • Credit scores are three-digit numbers based on the information in your credit reports

How credit scores are helpful

While credit reports offer a good way of delving into the details of someone’s credit history, used alone they aren’t the best means of determining creditworthiness. Thus, the importance of credit scores.

As stated on

“Credit scores give lenders a fast, objective measurement of your credit risk. Before the use of scoring, the credit granting process could be slow, inconsistent and unfairly biased…”

FICO says credit scores help:

  • Loans get approved faster
  • Make credit decisions fairer
  • Minimize the importance of negative credit listings (the older they are, the less impact they have on a credit score)
  • Make more credit available, and with lower interest rates, because creditors are able to make faster, smarter lending decisions to borrowers more likely to be good credit risks

How credit scores are generated

The big three national credit bureaus – TransUnion, Experian, and Equifax – generate credit scores. However, each of these scores may be unique from the other for a couple of different reasons:

  • Credit scores are based on the credit reports compiled by each of the three credit bureaus. And each of these reports could contain different information from what’s in the other two reports. Why? Because data furnishers (credit card companies, mortgage lenders, auto financers, etc.) who report information about you get to choose which bureau they report to. So with the possibility for three different credit reports, you have the same possibility for three different credit scores.
  • Credit bureaus use different scoring models to generate credit reports. That’s why you can have a FICO Score from one credit bureau that is different from the same bureau’s VantageScore. Add to that industry-specific credit score versions and you have several scores that can affect your creditworthiness.

Credit score scale

Lenders have their own internal requirements for judging creditworthiness, but in general here’s how credit scores stack up:

  • 750-850 – Excellent credit
  • 650-749 – Good/Fair credit
  • 600-649 – Poor credit
  • 300-599 – Bad credit

This is based on the 300-850 credit score range used in both the FICO and VantageScore models.

Types of credit scores

FICO Score

What Determines FICO ScoresWhat determines a FICO Score

As outlined on, the FICO Score algorithm is based on:

  • Payment history – 35 percent
    • With credit card companies, retail accounts, installment loans, finance company accounts, mortgage loans
    • Late payments, including how late, how much owed, how recent, and how many
    • Accounts that have been turned over to collection agencies
    • Public records, including bankruptcies, foreclosures, lawsuits, wage garnishments, liens, and judgments
  • Amounts owed – 30 percent
    • How much owed on all accounts
    • How much owed on different types of accounts
    • Credit utilization ratio on revolving accounts
    • How many accounts have balances
    • How much still owed on installment accounts
  • Length of credit history – 15 percent
    • When credit accounts were established (e.g., oldest account, newest account)
    • Average age of all accounts
    • How long since last used specific accounts
  • Credit mix – 10 percent
    • With credit card companies, retail accounts, installment loans, finances companies, mortgage loans
    • Types of credit (i.e., revolving credit and installment loans)
    • How many types
  • New credit – 10 percent
    • Number of new accounts
    • Number of recent inquiries
    • How long since last inquiries
    • How long since opened a new account
    • How long it’s been since you had credit problems (if ever)

Note, these are base percentages that can vary from one consumer to another. For instance, the shorter someone’s credit history, the more emphasis the credit scoring algorithm may place on other categories.

FICO Score versions

Newest: FICO Score 9, Auto Score 9, Bankcard Score 9

Most widely used: FICO Score 8

FICO Scores used by credit bureaus:


Base FICO Score 8


  • Auto loans
    • Auto Score 8
    • Auto Score 4
  • Credit cards
    • Bankcard Score 8
    • Bankcard Score 4
  • Mortgage
    • FICO Score 4


Base FICO Score 8


  • Auto loans
    • Auto Score 8
    • Auto Score 2
  • Credit cards
    • Bankcard Score 8
    • Bankcard Score 2
    • FICO Score 3
  • Mortgage
    • FICO Score 2


Base FICO Score 8


  • Auto loans
    • Auto Score 8
    • Auto Score 5
  • Credit cards
    • Bankcard Score 8
    • Bankcard Score 5
  • Mortgage
    • FICO Score 5

Note, the versions used will vary from lender to lender. But FICO says you shouldn’t expect too wide a range of difference among scores. If you have a high base FICO Score, you should expect to have a high Auto Score or Bankcard Score.

Score ranges

Base FICO Score: 300-850

Auto Score and Bankcard Scores: 250-900


What determines a VantageScore

Unlike FICO, VantageScore does not break down the importance of each category into percentages, but by a general level of influence:

  • Payment history – Extremely influential
  • Percent of credit limits used – Highly influential
  • Age and type of credit – Highly influential
  • Total balances/debt – Moderately influential
  • Recent credit behavior and inquiries – Less influential
  • Available credit – Less influential

Score versions

VantageScore 3.0

Score ranges

VantageScore 3.0: 300-850

Older VantageScore Versions: 501-990


What’s not included in a credit score

If it doesn’t appear on your credit report, it doesn’t affect your credit score, including:

  • Income or net worth
  • Unemployment
  • Your spouse’s credit history
  • Criminal records
  • Medical records (though unpaid medical debts can appear on reports and affect your score)
  • Race
  • Religion
  • Political party affiliation

And though the following do appear on your credit report, they do not influence your credit score: how old you are, where you live, or who you work for.

Which credit score lenders use

First and foremost, the score lenders see will depend on which credit bureau they check (the score for which depends on what information about you is in that bureau’s credit report). Also, all three credit bureaus generate both FICO and VantageScores, either of which could be used by a lender.

Which credit scoring model: FICO vs. VantageScore

FICO says 90 percent of the top lenders use FICO when making lending decisions. But VantageScore cites its own set of impressive statistics:

  • More than 8 billion VantageScores used in a 12-month period 2015-2016
  • Over 2,400 lenders (and other industry participants) using VantageScores from July 2015 to June 2016

So, while FICO Scores are the most universally used, VantageScores get checked, too.

Which credit scoring version

If creditors are checking your FICO Score, the version they use will depend the type of credit they may be extending to you:

  • If you’re applying for a mortgage, expect lenders to look at base FICO Scores
  • If you’re applying for a credit card, expect issuers to look at Bankcard Scores
  • If you’re applying for an auto loan, expect lenders to look at Auto Scores
  • If you’re applying for personal loans, student loans, retail credit, or other types of credit, expect lenders to look at base FICO Scores

If creditors are checking your VantageScore, they’ll be seeing the most recent version – VantageScore 3.0 – which is used by all three credit bureaus. Like FICO, VantageScore generates industry-specific scores as well.

Who can see your credit scores

With the exception of potential employers, the same people who check credit reports can also check credit scores:

  • Banks
  • Credit cards issuers
  • Auto lenders
  • Mortgage lenders
  • Landlords
  • Car insurance companies
  • Car rental companies
  • Utility companies
  • Cell phone companies
  • Government agencies

Your application for credit or services through these entities implies consent. As for employers, they can only view your credit reports with written consent.

Of course, you can see your own credit scores, too.

How often you should check credit scores

At least once a year

Much like your credit reports, it’s a good idea to check your credit scores at least once a year. That said, you’re entitled to see your credit reports for free every 12 months. The same is not true of your credit scores. You can see them for free under certain circumstances and with certain services, but there is no law requiring as much, meaning you could have to pay for certain scores.

Before you apply for credit

In addition to whatever regular monitoring you do of your credit scores – whether you pay for them once a year or monitor them all year long through a free credit monitoring service – it’s a good idea to check them right before you apply for credit.

Credit reports and the scores they generate change all the time. So the score you checked 6 months ago could look a lot different today:

  • If it’s worse than you thought, you might think twice about applying for credit right away and focus instead on credit repair. Otherwise you could be looking at higher interest rates, higher deposit requirements (if applicable), and even the possibility of not qualifying for credit at all.
  • If your credit score is better than you thought, you’ll know you could qualify for even better terms than you had expected and you can shop around accordingly.

For example, if you’re in the market for a new credit card, you can check credit card comparison sites to find cards for certain types of credit (e.g., Excellent, Fair, Bad). By checking your credit score first, you’ll know which category your credit falls into and you can apply accordingly.

Where to get your credit scores

Until legislation passes entitling you to see your credit score for free every year (the same way you can your credit report), here’s what you have to do to see it.

To see your FICO Score:

  • Pay for it through or through the individual credit bureaus
  • Look for it on your credit card statement (many credit card issuers include them there now as a customer service)

To see your VantageScore:

  • Pay for it through the credit bureaus; the VantageScore website directs consumers to TransUnion and Experian (Experian’s offer is the most straightforward, charging $7.95 to see your score)
  • Sign up through free credit monitoring sites for regular access to your credit scores (and reports)

UPDATE: In the wake of the Equifax hack, it’s recommended that you keep a credit freeze on all of your credit reports. Unfortunately, many free credit monitoring sites won’t work while a credit freeze is in place. Credit Karma is a notable exception; it just has to be unfrozen during the sign-up process.

When you receive credit score notices

Without having to request them at all (for free or paid), you may see your credit score when you receive certain notices relative to applications for credit:

  • Adverse action notice. If a creditor turns you down for credit based on a credit score, they must include the credit score in the adverse action notice they are required by law to send you.
  • Risk-based pricing notice. If a creditor gives you worse terms based a credit score, they must include the credit score in the risk-based pricing notice they are required by law to send you.

Understanding Reason CodesUnderstanding reason codes

When you receive your credit score, you may notice two-digit or text-based reason codes that come along with it. These are codes that correspond to reasons your credit score is not higher (not to be confused with the reasons you were denied credit or didn’t receive the best interest rate). To make sense of these reason codes, use for quick translations.

How to improve credit scores

You need not have bad credit to aspire to a better credit score. Because the better it is, the better credit terms you’ll qualify for in the future.

Credit disputes

Errors on your credit reports could be dragging down your credit score (e.g., late payments listings you thought you paid on time, wrong credit limits, wrong account balances, accounts you do not recognize). Here’s how credit disputes work:

  • Request your credit reports (through com or free credit monitoring sites)
  • Look for errors on your reports
  • Dispute errors with the credit bureaus
  • Dispute with original creditors or collection agencies, need be

If the data furnishers of a listing cannot prove the accuracy, the credit bureaus must correct the disputed listing.

Debt validation

Collection accounts on your credit reports drag down your credit score. Paying them off may end up being your best option, but try debt validation first.

Within 30 days of receiving the initial notice from a debt collector, request debt validation. Through this process, they must prove that 1) the debt actually exists, 2) you are the one who owes it, 3) and they have the right to collect on it. If they do not provide such validation, the credit bureaus must remove the listing.

Debt settlement

For collection accounts that are not removed via debt validation, try settling for less than you owe. If the statute of limitations has passed, you have a particularly good opportunity for negotiating a better deal since you are no longer required to pay it (but may want to as it can stay on your credit reports up to 7 years). Just be sure to pay for delete, meaning that once you pay, they will remove the listing.

Get the facts on DIY debt settlement.

Other ways to improve your credit score

Beyond that, it’s a good idea to monitor your credit regularly. The sooner you catch errors or signs of identity theft, the more you can minimize the damage.

So when you get right down to it, what matters most about your credit isn’t your credit score. What matters most is your credit behavior. Get that right and your credit score will fall into place.

What’s the deal with alternative credit scores?

Find out. Learn the difference between traditional scores and alternative scores, who generates alternative scores, who uses them, their pros and cons, and which alternative scores we recommend you focusing on.

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