15
Jul

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Your credit score is almost synonymous with your identity in the U.S.  Not everyone has a credit score, but your credit score or lack of it affects many aspects of your life: whether or not you get credit cards, get the best interest rates or even get the best insurance premiums. Although most Americans have a basic grasp of credit, here’s some things you may not know about your credit score.

 

  1. There are different types of credit scores. There are two main types of scores, the FICO® score, developed by FICO (formerly Fair Isaac) and the VantageScore, developed by the big three credit bureaus, Equifax, Experian and Transunion. A constant striving for improvement has led to new releases of an “improved” version of the FICO credit score every few years. Still in use are FICO98, FICO 04, FICO 08 and finally FICO 9. The VantageScore has had 3 incarnations: VantageScore 1.0, VantageScore 2.0 and VantageScore 3.0.

 

The different flavors of the scores are tailored to the type of loan being evaluated, leading to the many types of scores. There are variations of FICO scores and VantageScores for mortgages, autos, credit cards and insurance.

 

Where you get your credit score also matters: each of the credit bureaus has their own VantageScore credit model.

 

Finally, each lender has its own adaptation of the credit score.  Lenders typically buy the credit-scoring model from either from FICO or the credit bureaus and then customize it to meet their own individual business needs.

 

  1. The credit bureaus don’t determine whether or not you qualify for credit, they just calculate your score. The three credit bureaus merely collect data from creditors and public records about you and compile it into credit reports. The information in these credit reports is used to calculate your credit score.  FICO uses the data in your Equifax, Experian and Transunion credit reports to calculate your score.

 

While the credit bureaus certainly sell their credit scores, lenders typically do not use them.  They take your credit report data to calculate their own credit scores for underwriting.  These lender scores incorporate business rules tailored to the banks’ comfort levels with various credit behaviors.  The banks then determine what credit score ranges qualify you for various credit products.

 

  1. Your credit scores are different from each of the credit bureaus, and this is not a mistake. The law does not say that creditors must report account history to the credit bureaus. The Fair Credit Reporting Act (FCRA), the law governing how credit bureaus and creditors report credit histories, only requires that the information sent to the credit bureaus be accurate.  In addition, it costs money to set up a system to electronically transmit credit data, and there are fees associated with submitting information to the credit bureaus data banks.  Therefore, not all creditors report to all three credit bureaus.  As was mentioned before, though all may use the VantageScore, each scoring model is slightly different from bureau to bureau.  Therefore, your credit score is going to vary from bureau to bureau.

 

  1. Your age, martial status, income, and other personal information are not used to calculate your credit score. Your credit score is only based on your payment history on your accounts plus public records associated with your credit. Personal information is not considered. Along with age and income, your race, religion, income, occupation, employment history and gender are not considered.

 

  1. Closed accounts can still affect your credit score. Just because an account is closed, it doesn’t mean that the account is erased from your credit report. In general, accounts in good standing (no late payments) can stay on a credit report for 10 years.  An account that was not paid as agreed can stay on your credit report for 7 years plus 180 days from the date of the first delinquency.

 

  1. The law limits who can see your credit report. The FCRA regulates who can see your credit report: anyone viewing your credit report needs a permissible purpose. A permissible purpose means the person requesting the information either has a court order, is going to use the information in connection with a credit transaction, is using it for employment purposes, insurance, licensing, child support information or the accessing of an existing credit obligation.  If none of the previous situations exist, written permission to see a credit report is required.

 

  1. You are entitled to a free credit report each year, but your credit score is not free. When the law was passed in 2003 (FACT Act) entitling people to see their credit reports, there was talk of making credit scores free, but this provision failed to pass Congress as part of the final bill.  There is never a need to buy your credit score as lenders do not use the credit scores you buy.  There are many sites that will allow you to see your Vantage score for free, but if you want to see your FICO score, you must pay for it at myfico.com.

 

  1. Checking your credit report will not hurt your credit score. It’s true that every time someone (even you) request your credit report, a notation is put on your credit report, called an inquiry. There are hard inquiries and soft inquiries.  A soft inquiry happens when you pull your own credit report, or a creditor with whom you already have an account pulls your credit.  These do not impact your credit score.  Hard inquiries, which happen when you apply for new credit, may have an effect on your credit score.

 

 


Posted in Credit Score