Credit Scores: Not So Straightforward

We hear a lot about credit scores and how important they are. Indeed, you can’t get a loan with out one, and in some cases you may not be able to get a job or an apartment. Some insurance companies will adjust your premium based on your credit score, and the interest rate you end up with on a loan depends on your credit score. Unfortunately, you may not know which credit score is being used. Because there are numerous credit scores — all of them using slightly different criteria and formulas to boil down your financial history into a single number.

Each of the credit reporting bureaus has its own credit score, which is different from the FICO score issued by the Fair Isaac Company. Lenders may choose any of these to use. Depending on the company, your score may differ by between 5 to 20 points. Mortgage lenders usually pull all three scores from bureaus and use the middle one. When we applied for our mortgage loan, I had a 705, 717 and 720. On top of these differences between the major credit bureaus, it is worth noting that auto finance scores may be different, developed by “specialists” in that industry to measure different aspects of your financial history.

Even though your credit score varies according to the issuer, there are some things you can do to help improve your credit score across the board:

• Make payments on time.
• Reduce your debt load.
• Limit the number of times you request credit.

You can check the TransUnion version of your credit score for free at CreditKarma.com.

image source: Pne via Wikimedia Commons