By the Pachyy Editorial TeamThe Pachyy Editorial Team comprises a diverse and experienced team of writers, researchers and subject matter experts whose aim is to provide you with useful insights, guidance and commentary on all matters related to your personal finances.
Credit scores play a significant role in shaping your opportunities and interest rates when it comes to borrowing money. Since there are various types of credit scores available, it can be confusing to know which one to focus on. So, which credit score is used most frequently? Discover which credit score financial institutions predominantly rely on and also find out how you can keep a close eye on your own credit scores. A credit score is a three-digit numerical representation of your creditworthiness. Most credit scores range from 300 to 850 points. Six out of every ten Americans have a score above 700.1 Credit scores are determined by credit scoring models, such as the FICO credit scoring model, and these models are used by major credit bureaus. For the most accurate credit score, it’s best to check with them. Having a high credit score demonstrates that you manage your money wisely and make good financial decisions. Conversely, low credit scores indicate that you may be seen as a credit risk. Borrowers with good credit tend to receive better loan terms, which can help them save money in the long run. Understanding your credit score is crucial to gaining financial power. Learning how different factors influence your credit scores can help you work towards building a strong credit rating in no time! Have you ever wondered how financial institutions and businesses make decisions about your creditworthiness? It’s all thanks to credit reporting agencies, also known as credit bureaus, which gather information about your financial activities and compile it into a credit report. In the United States, there are three national credit bureaus: Experian, Equifax, and TransUnion. Each of these credit bureaus maintains a separate credit report for every consumer. This means that the information on your credit reports may differ from one bureau to another because they do not share data. The good news is that you can access your credit reports for free once every twelve months from each of the three credit bureaus. To obtain your free credit reports, you have several options:
Visit the Annual Credit Report website
Call (877) 322-8228
Mail a request form to the Annual Credit Report Request Service
Visit the website of the credit bureau
Regularly checking your credit reports enables you to stay informed about your financial health and gain a better understanding of your credit status. Take advantage of this opportunity to monitor your credit position and make more informed financial decisions. When it comes to calculating credit scores, credit bureaus typically use two main models: FICO score and VantageScore. Both models consider different factors and have their own numerical ranges. Let’s explore the differences between FICO scores and VantageScore.
FICO Score
The FICO credit score is widely used and was first introduced in 1989 to help financial institutions make informed lending decisions. It considers five primary factors: payment history, amounts owed, age of credit accounts, credit mix, and new credit. The Fair Isaac Corporation provides different types of FICO scores, such as the base FICO score, FICO Bankcard Score, and FICO Auto Score. These scores help lenders assess a borrower’s credit risk. The specific FICO scoring model used by a financial institution may vary depending on the type of loan you’re applying for. Your base FICO score can help calculate an industry-specific score tailored to specific loan qualifications. For example, an auto loan lender may consider your FICO Auto Score to assess your ability to make on-time auto payments. Industry-specific scores have different scoring ranges, like the FICO auto score that ranges from 250 to 900, while the base FICO score ranges from 300 to 850.
Credit Score Ranges for FICO Score
A FICO score ranges from 300 to 850, and your credit rating falls into one of five categories:
FICO Score Range
Credit Rating
800 – 850
Exceptional
740 – 799
Very Good
670 – 739
Good
580 – 669
Fair
300 – 579
Poor
Most financial institutions prefer borrowers with a good credit rating or higher when applying for loans or credit cards. According to the FICO score range, a good credit score is anything above 670 points.
Five Factors for FICO Scores
There are five primary factors that impact your FICO credit score, each contributing a small percentage to your overall score.
Payment History (35% of Your FICO score)
Your payment history, accounting for 35% of your FICO score, reflects your reliability as a borrower. Making continuous on-time payments is crucial for maintaining a good credit score.
Amounts Owed and Credit Utilization (30%)
The amount of debt you owe and your credit utilization rate play a significant role in your FICO score. Keeping your credit utilization below 30% is important for maintaining a good score.
Length of Credit History (15%)
The length of your credit history affects your score, particularly if you have a long history of on-time payments.
New Credit Inquiries (10%)
Applying for too many new credit accounts within a short period can negatively impact your credit score. Limiting credit inquiries helps maintain a favorable score.
Credit Mix (10%)
Having a mix of installment and revolving accounts can positively impact your credit score, but it’s not necessary to have both types.
VantageScore
VantageScore is an alternative credit score developed in 2006 to compete with FICO scores. VantageScores range from 300 to 850 and use different scoring models than FICO. A high VantageScore indicates reliability as a borrower, while a low score suggests potential repayment challenges. Qualifying for loans with a low VantageScore is still possible, but the terms may not be as favorable. VantageScore offers two models: VantageScore 3.0 and VantageScore 4.0, with VantageScore 3.0 being the most commonly used.
Score Ranges for VantageScores
VantageScores are categorized into four ranges, from subprime (lowest) to superprime (highest):
VantageScore Range
Credit Rating
781 – 850
Super Prime
661 – 780
Prime
601 – 660
Near-Prime
300 – 600
Subprime
Having a VantageScore of 781 or higher can earn you the best credit rating. Compared to FICO scores, where 781 would only rank as ‘very good,’ VantageScores allow for a higher credit rating. While most lenders prefer prime scores, you can still access loans with near-prime or subprime credit, but you may face higher interest rates due to the higher credit risk.
Five Factors for VantageScores
According to the VantageScore 3.0 model, credit scores are influenced by five factors, each with a specific percentile weight:
Payment History – 41%
Depth of Credit – 20%
Credit Utilization – 20%
Balances – 11%
Recent Credit – 6%
Available Credit – 2%
Payment history remains the most important factor for credit scores, regardless of whether FICO or VantageScores are being used. Maintaining a record of continuous on-time payments can quickly improve your credit score. Checking your credit score is a great way to keep track of your financial well-being and gain a deeper understanding of your credit situation. Luckily, there are several free methods to access your credit scores. You can:
Refer to your loan or credit card statement where your credit scores may be provided.
Obtain your credit scores directly from one of the three credit bureaus through a purchase.
Utilize reputable websites that offer free credit scoring services, such as Credit Karma or Credit Sesame.
By following any of these options, you’ll be able to easily stay informed about your credit scores.
Having Plenty of Available Credit
One thing that many people mistakenly believe is that having too much available credit, such as high credit card limits, can harm your credit score. In reality, having higher limits (and using a smaller percentage of them) can actually improve your credit utilization ratio, which could have a positive impact on your score.
Checking Your Own Credit Score Doesn’t Harm Your Score:
The reality is that when you check your own credit score, it is considered a “soft inquiry” and doesn’t have any effect on your credit score. Only “hard inquiries,” which are made by lenders when you apply for new credit, can potentially have a temporary negative impact.
There Are Multiple Credit Scores:
It’s important to understand that there are various credit scores and models available, including FICO and VantageScore. Additionally, each of the three major credit bureaus—Experian, Equifax, and TransUnion—may report slightly different scores due to variations in data sources.
Having a Credit Card Balance Doesn’t Improve Your Credit:
You don’t actually need to maintain a balance (and pay interest) on your credit card in order to build good credit. It’s more crucial to consistently pay your bills on time and maintain a low credit utilization ratio.
Closing Old Credit Cards Can Impact Your Score:
It’s important to note that closing old or unused credit cards can potentially have a negative impact on your credit score. This is because it can reduce the length of your credit history and increase your credit utilization ratio.
A High Income Doesn’t Guarantee a Higher Score:
Your income is not directly factored into your credit score. However, lenders may take your income into consideration along with your credit score when making decisions about approving you for credit.
Paying Off a Negative Record Doesn’t Immediately Remove It:
Paying off a debt that has gone to collections or resolving other negative marks will not automatically remove them from your credit report. These negative marks can remain on your report for up to seven years, although their impact will lessen over time.
Avoiding Credit Cards Completely Isn’t Necessary:
It’s important to understand that using credit cards responsibly is an excellent way to establish a positive credit history. The key is to manage them wisely rather than completely avoiding them. Why do FICO and VantageScore have different score ranges? Although both scoring systems generally range from 300 to 850, they use different models and calculations. For example, the FICO Auto Score has a range of 250 to 900. The variation in range is due to how each model assesses credit history and other factors. Are there credit scoring models other than FICO and VantageScore? Yes, besides FICO and VantageScore, there are other credit scoring models in use. However, these models may not be as widely accepted by lenders. How frequently are credit scores updated? Credit scores can be updated as often as monthly, depending on how frequently lenders and creditors report new information. It’s important to check your score regularly to ensure its accuracy. What happens to my credit score if I close an old credit card account? Closing an old credit card account can affect the length of your credit history, which is a factor in calculating your score. It may also impact your credit utilization ratio if you have balances on other cards. How can I ensure that I’m looking at the most accurate credit score? To obtain the most accurate credit score, it is recommended to check with the three major credit bureaus: Experian, Equifax, and TransUnion. Since each bureau may have slightly different information, comparing scores from all three can provide a comprehensive and accurate credit score. When it comes to lenders, the two credit scores they rely on the most are the FICO score and VantageScore. Each type of credit score has its own range and factors that impact the calculation. At Pachyy, we believe it’s important for you to know that your payment history holds the key to building an excellent credit rating. To make it easier to pay bills on time, consider setting up reminders and automatic payments. If you have more questions, feel free to explore our other helpful blogs, such as “when did credit scores become a thing?” References: