Score Advice

Why There’s More to a Credit Score Than a Single Number

A credit score by itself is meaningless without an understanding of how it's calculated and how lenders evaluate it.

Still, this three-digit number has a major impact on how soon you can achieve financial goals, including home ownership, and how much you'll pay in loan interest over time. Here's what to know about credit scores so you can use them as a tool to help you attain the life you want.

Why Credit Scores Need Context

Many consumers are unfamiliar with the complexity behind credit scoring. For instance, almost 40% of adults do not know that individuals have more than one credit score, according to a June 2019 survey performed by the Consumer Federation of America, a coalition of nonprofit consumer groups, and VantageScore Solutions, which oversees the VantageScore® credit scoring model.

But to put yours into perspective, it's crucial to understand three main characteristics of credit scores.

1. There Is No Single Credit Score

You have many credit scores to your name. There are credit scores used by individual lenders, by specific industries, and for particular types of lending. For example, lenders may look at different scores for the same person depending on whether they are making an auto loan, a mortgage or a credit card decision. A lender will look at your FICO Auto Score before issuing a car loan and your FICO Bankcard Score before approving you for a credit card.

The major credit scoring models, FICO and VantageScore, also update their algorithms periodically, which may change how they weigh certain factors within a credit score. For instance, FICO® Score 9, the latest version, does not penalize unpaid medical collections as strongly as previous versions did.

What's more, the three credit reporting agencies—Experian, TransUnion and Equifax—may use different versions of your FICO® Score for the same loan product. Experian, for instance, reports the FICO® Score 2 for mortgage lending decisions, while TransUnion reports FICO® Score 4, according to FICO.

2. There Is No Single Scoring Scale

While it's ideal to reach the highest credit score possible no matter what version you're using, the top scores can vary. The FICO® Score 8 is the most widely used version of the FICO® Score, and its scale ranges from 300 to 850. The VantageScore range is the same. Industry-specific FICO scores, however, range from 250 to 900.

Even when multiple versions use the same scale, if they weigh information differently, you may receive unique scores from each. For instance, older FICO® Score versions used by mortgage lenders have scales that range from 300 to 850. So does your FICO® Score 8, also known as your base FICO® Score. But you may have a different score for mortgage lending and when applying for a student loan. That's because the importance assigned to specific financial behaviors in your credit profile can vary.

3. There Is No Single Acceptable Credit Score

Each lender determines the score range it considers acceptable and sets cut-off points based on its risk tolerance. Even when two businesses use the same credit scoring model or version, a score could be sufficient to one and inadequate to another.

You can use a rule of thumb, though, to see where you fall in the eyes of the average lender. A FICO® Score from 670 to 739 is considered a good credit score, from 740 to 799 is very good, and from 800 to 850 is exceptional. A VantageScore from 661 to 780 is good and from 781 to 850 is excellent. Individual businesses may have their own approach to evaluating scores, or more specific bands within those ranges that dictate the likelihood of loan approval.

Why You Should Still Know Your Credit Score

Knowing you have more than one credit score, and that each score says something different about your financial history, makes it even more important to know where you stand. Checking the credit score that lenders are likely to use to assess your credit risk will make you a more prepared consumer. Take a look at your FICO Auto Score 8 several months before buying a car, for instance, to see if you can make changes to any factors negatively affecting your score.

Your credit score is produced using information in your credit report, so look it over to make sure there aren't any major errors that could affect several of your scores. Your report includes background on credit accounts, such as auto loans, student loans and credit cards; requests you've made for new lines of credit; and bankruptcies.

Check your credit report for inaccuracies in payment history and for accounts that could have been fraudulently opened in your name, and dispute them if necessary with each credit bureau.

How to Check Your Credit Score

There are many ways to check your credit score for free. Your bank or credit card company may offer a free monthly credit score. Some companies, including Discover and Capital One, offer this service to everyone, not just to customers.

You can also use a free online service, such as the one available from Experian, to check your score and monitor it regularly for changes. In each case, confirm which credit scoring model and version you'll see, especially if you want to check a specialized score before applying for a specific loan.

Ideally, you'll be able to identify what, if anything, is contributing negatively to your score—a high credit card balance, for instance—and alter your financial behavior to limit its impact. You can also check regularly for any fraudulent charges or accounts opened in your name.

The Bottom Line

There's more to credit scoring than a single number. But don't let that intimidate you. Understanding the differences among your scores, and how your actions affect them, only makes you a more perceptive consumer—one who can anticipate setbacks to loan approval before you encounter them, and who can make financial decisions with confidence.

How Good Is Your Credit Score?

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