DIY Credit Help: The 5 Credit Scores You Need To Know

A common consumer misconception is that there is one credit score, when the truth is there are dozens. Many different lenders, credit bureaus, companies, and credit reporting agencies have their own credit score based on their particular brand of credit score model.

Every credit score model out there shares two things in common:

  1. They use information from your credit report
  2. They are a numerical assessment of your creditworthiness

What is different between every model, and the reason why you’ll see a difference credit score from different providers, is how the factors of your credit history are weighted and how the score algorithm itself is calculated.  However, there is no one best credit score. Lenders and issuers check different credit score types, from the TransUnion TransRisk, to FICO, to Experian, to VantageScore, and the list goes on. So it’s inaccurate to pinpoint the ONE, “correct” credit score. It’s relative.

We can take this universe of credit scores however, and boil it down to what we think are significant credit scores to your financial health. Here’s Credit Karma’s guide to the 5 credit scores that are important to keep your thumb on:

1) Your Credit Karma score - Since there is no ONE credit score, what’s crucial is to pick a credit score to regularly check and keep track of for any major changes, progress, or fluctuations. Credit Karma uses the TransUnion TransRisk credit score, and luckily for consumers, Credit Karma credit scores can be updated for free daily. Check your credit score at least once a month, which is as often as the bill cycle for most loans and credit cards. The idea here is to keep track of your credit score not because it’s the only score, but because you can freely and consistently monitor any credit score changes that reflect changes in your credit report and credit health as a whole.

2) FICO score - The FICO score is known as the lender standard, thanks to a long history as the first credit score model. While this isn’t by all means the only credit score lenders will look at, many lenders and issuers use this credit score when making lending decisions and you can obtain your free FICO credit score.

3) VantageScore - The VantageScore is the up-and-coming credit score created in conjunction with the three major credit bureaus, TransUnion, Experian, and Equifax, to compete with the FICO score. While it isn’t widely adopted yet, it claims to be able to score consumers with limited histories (who often can’t generate a credit score) and more accurately determine consumers’ creditworthiness. It may knock FICO from its pedestal, and become the future lending standard.

4) The credit standard - Once upon a time, the credit score standard was used to grab the best rates, get loan approval, and qualify for a mortgage was 680. Today, the number for a good credit score is 720, and in some cases, the most premium rates and products are accessible at the 750+ range. The recession’s credit crunch tightened recent credit standards, and as more financial regulations are passed and economic recovery speeds up, the credit landscape will continue to shift.  Keep your finger on the pulse of the credit industry to know what credit score you must shoot for in order to access the best financial opportunities.

5) Insurance score - Many consumers are unaware of their insurance score, but nearly every insurance company uses this credit-based number to price an applicant’s premiums. Very similar to a credit score, insurance scores are calculated in part according to a consumer’s credit history, including factors such as debt, payment history, and credit use, to help assess insurance risk. The theory behind an insurance score is that the lower the insurance score, the higher the risk of claims, and the higher your premiums should be priced. Be aware of the use of insurance scores because it directly affects the cost of insurance to you.

The point here isn’t to drive you crazy stressing over five different kinds of credit scores, but to be acutely aware of the significant scores that are likely to affect you. Now that you have the power of knowledge under your belt, the next action-oriented step is to monitor and track your credit health. It’s your best tool to maximize your savings opportunities, access credit, and open more financial doors.

Credit Karma™ is a completely free credit management service that provides free credit scores, financial education, and personalized savings recommendations. We help more than 2 million consumers realize the everyday cost savings of having a good credit score.

Published or Updated: March 22, 2012

Comments

  1. Briana @ GBR says:

    Looking forward to seeing if a Vantage Score will help me out while I’m looking forward to purchasing a home :)

  2. byDesign999 says:

    Good info!

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