Avoiding Credit Score Confusion & Understanding Healthy Credit
Suffering from credit score confusion?
We can help! Today, we’ll be discussing the different credit scoring models that you’re likely to encounter, while providing tips to help you build and maintain a healthy credit lifestyle.
To start, let’s discuss the two primary credit scoring companies:
Fair Isaac Corporation (FICO) & The VantageScore
FICO credit scores have been the standard in credit scoring since 1956, and are widely used throughout multiple industries such as mortgage lending, consumer lending, retail, insurance and more. Here is a breakdown of how they calculate a credit score, according to myfico.com:
35% Payment History
30% Amounts Owed
15% Age of Accounts
10% New Credit (Inquiries)
10% Credit Mix
Unfortunately, there are hundreds of factors that go into a credit score, and all they give us is a pie chart. To make things more confusing, the FICO credit score will change depending on where you apply for the loan, and what type of loan you’re applying for. For example, your lending could be using a FICO Bankcard Score 9, which differs from the FICO Bankcard Score 2. These variations in credit score depend on which model the lending institution chooses to use.
Now that we understand how a FICO credit score works, we need to evaluate The VantageScore, which is their primary competitor. The VantageScore was created in 2006, and has become popular among consumer monitoring sites and consumer based lenders. Here is a breakdown of how they calculate a VantageScore 4.0 credit score, according to VantageScore.com:
41% Payment History
20% Utilization
20% Age Of Accounts & Credit Mix
11% New Credit (Inquiries)
2% Available Credit
6% Balance
The VantageScore claims that they can score up to 30 million more “credit invisible” consumers than FICO, and is scheduled to be introduced to the mortgage industry as early as 2024.
Although there are benefits of having a competitive credit scoring industry (lower costs, improved innovation, etc.), it does come with a cost: credit score confusion. Because these credit scoring models differ from each other, it can lead consumers confused as to what is a healthy credit score, and how to maintain one.
Fortunately, there are 4 credit habits that can help you build and maintain healthy credit, regardless of the credit scoring model used:
Have a strategy to manage credit card debt.
Set key credit account payments on auto-pay (credit cards, auto loans, mortgages, etc.).
Avoid unnecessary inquiries.
Monitor your credit report regularly.
Establishing these habits will help you built and maintain a healthy credit profile, lowering the stress and confusion associated with applying for a loan or understanding your overall credit health.
If you’re struggling with credit challenges and want to learn more about how Premier Credit can help you accelerate your progress towards healthy credit, schedule a Free Credit Evaluation here.
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