The fact is that your credit score is variable, depending on which algorithm is used to calculate it. And there are literally hundreds of credit scoring formulas out there.
The most popular scoring formula with lenders is the FICO® score. But even FICO® has multiple scoring options for them to choose from, and each option can make your credit look a little bit different.
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Why are there different scores in the first place? And what does FICO®’s recently-released Auto Score 9 XT mean for you?
Why the Different Scores?
A credit score is really an effort to predict your financial responsibility. Older algorithms were good at telling banks and other lenders how you had handled your money in the distant or recent past. Today’s scores are getting better at honing in on factors that predict how you’ll handle your money in the future.
For instance, today’s credit scores can place special weight on your financial decisions in the past month to try to predict how you’ll act in the near future.
Also, different scores give more or less weight to different parts of your credit profile. It’s true that, in general, the two biggest factors in your credit score are how much debt you carry overall (especially revolving debt), and if you’ve made on-time payments.
But credit scoring algorithms may also take into account whether you make more than the minimum payments on your debts or whether you’ve been steadily increasing your level of credit card debt over the past few months.
The goal for any lender when pulling your credit score is to determine if you’ll be able to meet the terms of the loan. This is the case whether it’s a credit card, a mortgage loan, an auto loan, or anything else for which you’re applying. So, as the science of creating credit scoring algorithms has gotten more precise, companies like FICO® have come up with score reports custom-tailored for different lenders’ needs.
The FICO® Auto Score 9 XT
This is where we come to the new FICO® Auto Score 9 XT. This new score, which is available based on a consumer’s TransUnion credit file, was created specifically for auto lenders. As such, it takes into account risk factors that auto lenders are particularly concerned about. These include whether you’ve increased or decreased your amount of credit card debt in the past few weeks and months.
The Auto Score 9 XT is unique in that it looks at a consumer’s past 30 months’ worth of financial behavior with particular scrutiny. So, if you’ve been working hard to get yourself in a position to buy a vehicle, this score will actually help you.
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The algorithm grabs information from TransUnion CreditVision, which pulls together more detailed information than your typical credit report. For instance, CreditVision can tell lenders whether you make more than the minimum payment on your credit cards, an indicator that you’re working to stay in good financial standing.
The Auto Score 9 XT also looks at medical debt differently from other types of debt. Unpaid medical accounts that have gone to collections don’t count as heavily against consumers, compared with other accounts that have gone into collections. And collections agency accounts that have been paid off get ignored entirely. This is a great thing for consumers who are dealing with heavy medical debt even though they’re financially responsible otherwise.
What’s it Mean for You?
As a consumer, the FICO® Auto Score 9 XT isn’t life-changing. Before you apply for an auto loan, you’ll still want to follow the same old financial advice. This includes paying down revolving debts, making your payments on time, and not applying for new credit.
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But if you’ve struggled to get previous auto loans because of old credit dings, this formula might help you. Since it’s designed to give more weight to more recent behavior, it could very well work in your favor.
Of course, you ultimately have no control over which credit score auto lenders choose when you give them permission to view your scores. But if you think you’ll get a boost from the Auto Score 9 XT, it’s worth asking potential auto lenders if they’ll pull this one when you apply for a loan.