6 Most Used Different Types of Credit Scores
Different types of credit scores that lenders and credit reporting agencies use to evaluate an individual’s creditworthiness.
Credit scores are numerical representations of an individual’s or a business’s creditworthiness, and they play a pivotal role in the world of finance. While most people are familiar with the concept of a credit score, what many may not realize is that there isn’t just one single type of credit score.
In fact, there are a variety of credit scoring models utilized by different entities, each with its own criteria and scale. This comprehensive guide aims to shed light on the different types of credit scores, providing a deeper understanding of how they work and the significant role they play in various financial transactions.
From FICO scores to VantageScores, we’ll explore the key variations in these models, helping you comprehend the intricacies of credit scoring and how it affects your financial journey. Understanding these different credit scores is not only a valuable financial skill but can also empower you to make more informed decisions regarding loans, credit cards, and other financial endeavors. So, let’s delve into the diverse world of credit scoring and unravel the nuances of these essential numbers. Credit scores play a significant role in determining your financial health and ability to secure loans or credit. However, many individuals may be unaware that there are multiple types of credit scores available, each with its own scoring model and methodology.
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1. FICO Score
The FICO Score is the most widely recognized and used credit scoring model in the United States. It was developed by the Fair Isaac Corporation and ranges from 300 to 850. Lenders often rely on FICO Scores to assess creditworthiness and make lending decisions. The score is determined based on factors such as payment history, credit utilization, length of credit history, credit mix, and new credit applications.
Here are key components that are typically taken into account when calculating a FICO Score:
- Payment History (35%): This factor assesses your track record of making payments on time. Late payments, delinquencies, and accounts in collections can negatively impact your score.
- Amounts Owed (30%): This factor considers your credit utilization, which is the percentage of your available credit that you are currently using. High credit card balances relative to your credit limits can lower your score.
- Length of Credit History (15%): This factor takes into account the age of your credit accounts. A longer credit history tends to be more favorable, as it provides a more comprehensive view of your borrowing behavior.
- Credit Mix (10%): This factor evaluates the types of credit accounts you have, such as credit cards, loans, mortgages, etc. Having a diverse mix of credit can demonstrate your ability to manage different types of credit responsibly.
- New Credit (10%): This factor looks at recently opened credit accounts and credit inquiries. Opening multiple new accounts or having too many credit inquiries within a short period can negatively impact your score.
These factors are used to calculate your FICO Score, which ranges from 300 to 850. A higher score indicates a lower credit risk, making you more likely to qualify for favorable loan terms and interest rates. It’s important to note that different credit bureaus may have slightly different FICO Scores due to variations in the information they collect.
While the exact weightage of each factor may vary based on an individual’s credit history, understanding these general components can help you make informed decisions to improve or maintain a healthy FICO Score.
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2. VantageScore
VantageScore is another popular credit scoring model that was jointly created by the three major credit bureaus: Equifax, Experian, and TransUnion. It uses a scoring range from 300 to 850, similar to the FICO Score. VantageScore takes into account similar factors as FICO, including payment history, credit utilization, credit age, credit mix, and recent credit behavior.
- Payment History (extremely influential): This factor assesses your payment behavior, including the presence of any late payments, delinquencies, or accounts in collections.
- Credit Utilization (highly influential): It considers the ratio of your credit balances to your credit limits across all your accounts. Keeping your credit utilization low is important for a positive impact on your score.
- Credit Age and Mix (moderately influential): This factor looks at the length of your credit history and the diversity of your credit accounts, including credit cards, loans, and mortgages.
- Credit Balances (less influential): It considers the total amount you owe across all your credit accounts.
- Recent Credit Behavior and Inquiries (less influential): This factor takes into account any recent credit applications or inquiries, as well as the opening of new credit accounts.
The specific percentage breakdown for each factor in the VantageScore model is not publicly disclosed. However, generally, payment history and credit utilization carry the most weight in determining the score, while credit age and mix, credit balances, and recent credit behavior have a lesser impact.
It’s important to note that VantageScore versions have evolved over time, with the most recent version being VantageScore 4.0. Each version may have slight differences in the factor weighting and scoring range. Lenders may also have their own preferences and scoring models.
Monitoring your VantageScore can help you gauge your creditworthiness and take steps to improve your credit health. Additionally, it’s essential to understand that different lenders may use different scoring models when evaluating credit applications
3. Experian PLUS Score
The Experian PLUS Score is a credit scoring model provided by Experian, one of the major credit bureaus. It is based on a range of 330 to 830 and uses a similar scoring methodology as the FICO Score. The PLUS Score assesses credit risk based on factors such as payment history, credit utilization, length of credit history, recent credit activity, and available credit.
The calculation of the Experian PLUS Score is based on the information contained in your credit report from Experian. While the specific formula is not publicly disclosed, the following factors are typically considered:
- Payment History: This factor assesses your track record of making on-time payments to your creditors. A consistent history of timely payments can positively impact your Experian PLUS Score.
- Credit Utilization: The percentage of your available credit that you are currently using, known as credit utilization, is taken into account. Keeping your credit utilization low, ideally below 30%, can help improve your score.
- Length of Credit History: The age of your credit accounts, both the oldest and newest, is considered. Generally, a longer credit history indicates more experience in managing credit, which can positively affect your score.
- Types of Credit: The diversity of your credit accounts, such as credit cards, loans, and mortgages, can influence your Experian PLUS Score. Having a mix of different types of credit can be beneficial.
- Recent Credit Activity: This factor looks at your recent credit behavior, including the opening of new accounts and credit inquiries. Opening multiple new accounts or having numerous credit inquiries within a short period may have a negative impact on your score.
While the Experian PLUS Score can provide a general sense of your credit standing, it’s crucial to review your credit reports from all three major credit bureaus (Experian, Equifax, and TransUnion) and understand how your creditworthiness may be evaluated by lenders using more widely accepted scoring models.
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4. TransUnion CreditVision Score
The TransUnion CreditVision Score is a credit scoring model developed by TransUnion, one of the major credit bureaus. It ranges from 300 to 850, like the FICO Score, and evaluates creditworthiness based on various factors such as payment history, credit utilization, credit age, credit mix, and recent credit behavior. It also incorporates alternative data sources to provide a more comprehensive assessment of creditworthiness.
It is designed to provide lenders with a more comprehensive and predictive assessment of an individual’s creditworthiness. The CreditVision Score incorporates a wider range of data and utilizes advanced analytics to generate a more accurate credit risk assessment.
- Payment History: This factor evaluates your payment behavior, including the timeliness of your credit obligations. Making on-time payments and avoiding late payments can positively impact your CreditVision Score.
- Credit Utilization: The amount of credit you are currently using compared to your total available credit is evaluated. Maintaining a low credit utilization ratio, ideally below 30%, can have a positive influence on your score.
- Length of Credit History: The age of your credit accounts, both individually and as an average across all accounts, is taken into consideration. A longer credit history can contribute to a higher score.
- Credit Mix: The types of credit you have, such as credit cards, loans, and mortgages, are evaluated. Having a mix of different types of credit accounts can contribute positively to your CreditVision Score.
- New Credit Applications: The number of recent credit applications and inquiries are factored in. Multiple inquiries within a short period may have a negative impact on your score.
- Recent Credit Activity: This factor looks at your recent credit inquiries and new credit accounts opened. Excessive inquiries or new accounts within a short period may have a temporary negative impact on your score.
It’s worth mentioning that the TransUnion CreditVision Score is just one of the credit scoring models used by lenders.
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5. Equifax Credit Score
Equifax, another major credit bureau, provides its own credit scoring model known as the Equifax Credit Score. It uses a scoring range of 280 to 850 and considers factors such as payment history, credit utilization, credit age, credit mix, and recent credit behavior to assess creditworthiness.
The Equifax Credit Score is a credit scoring model provided by Equifax, one of the major credit bureaus. It is designed to assess an individual’s creditworthiness based on their credit history. The Equifax Credit Score ranges from 280 to 850, with a higher score indicating lower credit risk.
The exact calculation method and percentage breakdown used by Equifax for the Credit Score are not publicly disclosed. However, like other credit scoring models, several key factors are generally considered in determining the score:
- Payment History: This factor evaluates your payment behavior, including the timeliness of your credit obligations. Consistently making on-time payments can positively impact your Equifax Credit Score.
- Credit Utilization: The ratio of your outstanding credit balances to your total available credit, known as credit utilization, is taken into account. Keeping your credit utilization low, ideally below 30%, can have a positive effect on your score.
- Length of Credit History: The age of your credit accounts, including the average age of your accounts, is considered. A longer credit history is generally viewed favorably, as it provides more data points for assessing creditworthiness.
- Credit Mix: The types of credit you have, such as credit cards, loans, and mortgages, are evaluated. Having a mix of different types of credit accounts can contribute positively to your Equifax Credit Score.
- Recent Credit Activity: This factor looks at your recent credit inquiries and new credit accounts opened. Excessive inquiries or new accounts within a short period may have a temporary negative impact on your score.
It’s important to note that the specific calculation method and weightings of these factors may vary based on the version of the Equifax Credit Score used. Additionally, lenders and financial institutions may use different versions or modify the scoring model based on their specific requirements and risk assessments.
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6. Industry Specific Credit Scores
In addition to the commonly known credit scoring models like FICO and VantageScore, there are industry-specific credit scoring models that cater to specific sectors. These credit industry-specific scores are designed to assess creditworthiness and manage risk within specific industries. Here are a few examples of credit industry-specific scoring models:
- FICO Auto Score: This scoring model is tailored for the automotive industry. It assesses an individual’s credit risk specifically for auto loans and helps lenders determine the likelihood of timely repayment and the appropriate terms for auto financing.
- FICO Bankcard Score: This scoring model focuses on credit risk assessment for credit card lending. It considers factors relevant to credit card usage and repayment behavior, providing credit card issuers with a more targeted evaluation of an individual’s creditworthiness for credit card applications.
- FICO Mortgage Score: This scoring model is designed for the mortgage industry. It evaluates an individual’s credit risk in relation to mortgage lending, taking into account specific factors that are relevant to the mortgage application process, such as payment history, debt levels, and length of credit history.
- FICO Small Business Scoring Service (SBSS) Score: This scoring model assesses the creditworthiness of small businesses. It considers both personal and business credit data to evaluate the risk of lending to a small business and is commonly used by lenders when making loan decisions for small business financing.
- PRBC Score: PRBC (Payment Reporting Builds Credit) is a credit scoring model that takes into account alternative credit data such as utility bills, rent payments, and other non-traditional forms of credit. It is designed to help individuals with limited credit histories or thin files establish creditworthiness.
- CE Score: The CE (Credit Education) Score is a credit scoring model developed by CreditXpert Inc. It focuses on educational factors and provides a score that reflects an individual’s credit knowledge and financial behavior.
- LexisNexis RiskView: LexisNexis RiskView uses alternative data sources, including public records, property records, and identity verification, to assess credit risk. It provides an additional layer of analysis for lenders to evaluate creditworthiness.
- Innovis Credit Score: Innovis is a lesser-known credit bureau that provides credit reports and scores. Their credit scoring model takes into account traditional credit factors but may also include alternative data sources.
These credit industry-specific scores help lenders in specific sectors make more informed lending decisions by considering factors that are most relevant to the particular industry. It’s important to note that these scoring models may have different scoring ranges and calculation methods compared to general credit scoring models. Lenders in each industry may prioritize certain factors and use different thresholds based on their specific risk management strategies.
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Conclusion
Understanding the different types of credit scores is crucial for managing your creditworthiness and financial well-being. While FICO and VantageScore are the most commonly used credit scoring models, it’s essential to recognize that each scoring model may weigh factors differently, leading to variations in scores. Regardless of the specific scoring model, focusing on responsible credit management, timely payments, low credit utilization, and maintaining a healthy credit history will improve your creditworthiness across all scoring models. Regularly monitoring your credit reports and scores will help you stay informed and make informed financial decisions.
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Cheering To Your Success
Brenda | www.DesignYourFinances.com
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