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Credit scores have become ubiquitous in the consumer credit ecosystem. They are used, primarily, by lenders to assess the risk of doing business with consumer applicants. The two most commonly used credit scoring models, FICO® and VantageScore®, account for well over 20 billion scores used each year. When you apply for almost any form of consumer credit, one or more of your credit scores are calculated as part of the underwriting and risk assessment processes.
And while more than 200 million consumers have credit reports at one or more of the three national consumer credit reporting bureaus (Experian, TransUnion and Equifax), not every consumer has credit scores with all three bureaus because not every credit report can be scored. According to the Consumer Financial Protection Bureau, some 45 million consumers have credit reports that cannot be scored. In fact, you can have a credit score with one of the credit bureaus and not with the other two because your lenders may only report to one bureau. You may not have enough information in your credit file to create a credit score, and lenders are not required by law to report your credit activity.
What Is a Credit Score?
A credit score is a three-digit number that indicates your level of credit risk. Credit scores are calculated using sophisticated scoring algorithms that consider much of the information from your consumer credit reports. Most of the commonly used credit scores—those from FICO® or VantageScore—range from 300 to 850. A lower score indicates elevated credit risk, and a higher score indicates lower credit risk.
What Impacts Your Credit Scores?
Credit scores are impacted only by the information on your credit reports. Not all of the information that appears on your credit reports is considered by credit scoring models, however. To the extent the information is predictive of credit risk and legal for a credit score to consider, the following information is considered:
Payment history: This category accounts for roughly one-third of the points in your FICO® and VantageScore credit scores and is the most important credit scoring factor. This is where the presence or absence of negative information is considered. If your credit reports contain late payments, bankruptcy, repossessions, foreclosures, settlements, collections or any other information that indicates poor debt management, your scores will likely suffer. If, however, your credit report has a complete absence of this type of information, you will be well on your way to earning and maintaining fantastic scores.
Amount of debt: This factor accounts for around 30% of the points in your FICO® and VantageScore credit scores. These metrics consider your debt as it appears on your credit reports, including how many accounts you have with balances, how much credit card or loan debt you have, and credit utilization measurements. Generally speaking, the less debt you have on your credit reports, the better your scores will be. However, you do not need to be debt-free to have excellent scores.
The two aforementioned categories collectively account for about two-thirds of the points in your credit scores. As such, if you can perform well in these categories, then you're well positioned to earn great scores.
Length of credit history: This category accounts for about 15% of the points in your scores. Generally, consumers with older credit reports, older accounts and an older average age of accounts earn more points from this category. Length of credit history won't make or break your scores, but if you want to earn the highest scores possible, then you'll need to perform well here.
Credit mix and new credit: These categories each account for about 10% of the points in your credit scores. Generally speaking, having a more diverse set of accounts on your credit reports and fewer credit inquiries indicate lower credit risk.
FICO® and VantageScore Credit Scores
There are two commonly used credit score brands in the U.S. credit market: FICO® and VantageScore. FICO® is a public company listed on the New York Stock Exchange under the symbol FICO®. The company has been around since the 1950s and their first credit bureau-based scoring system became commercially available in 1989. VantageScore is a wholly owned subsidiary of the three credit reporting agencies. The company has existed since 2006, and four generations of the VantageScore credit score have been developed.
FICO® and VantageScore are the only two credit scoring systems in the United States that are "tri-bureau" scores, meaning they are available from each of the three credit reporting agencies. This allows lenders the flexibility to use multiple credit reporting agencies for credit report data but still obtain the same credit scoring model brand regardless of which credit report they choose to procure.
Why Can Your Score Differ From Bureau to Bureau?
It's highly unlikely that you will have the same FICO® or VantageScore scores from each of the three credit bureaus. Your scores, however, should be directionally similar, meaning if you have great credit reports, you will have great credit scores regardless of which credit report or credit score brand a lender chooses to use.
The primary reason your scores probably won't be exactly the same is that your credit reports are unlikely to be identical. If you have different credit reports, you'll have different credit scores. A secondary reason, which applies only to FICO® Scores☉ , is that the scoring models are different across the three credit reporting agencies. So, even if you did have identical credit reports across the three credit bureaus, your FICO® Scores would still be different. This does not apply to VantageScore's credit scoring models, as they are identical across the three credit bureaus.
It is possible that you can have scores on just one or two of your three reports. The reason why this can happen is that all of your credit reports must qualify to be scored, meeting minimum credit scoring criteria to make them scoreable credit reports.
Minimum Scoring Criteria
Each of FICO®'s and VantageScore's credit scoring models contain a set of requirements that must be met by your credit reports for them to be scored. This is called the scoring model's minimum scoring criteria.
FICO®'s credit scoring criteria is very simple. For your credit report to qualify for a FICO® Score, your report must contain the following:
- At least one undisputed account that is older than six months
- At least one undisputed account that has been updated in the past six months
In addition, your credit report cannot contain a "deceased" indicator.
So, for example, if you have an American Express account on your credit report that is eight years old, was just updated last month, and you're not deceased, then your credit report will qualify for all of FICO®'s credit scores. If all three of the aforementioned criteria are not satisfied, your file will not be scoreable.
VantageScore's criteria is more liberal. Its models will score credit files that have less than six months of history. They will also score files that have had updates within the past six to 24 months and no open accounts.
You might assume your credit reports would be similar enough that if one of them were scoreable, then the other two would also be scoreable. That's true for many consumers; however, because lenders are not required by law to report your credit information to any or all of the credit bureaus, it's possible that some of your credit experience isn't appearing on all three of your credit reports. You can check your credit reports from all three bureaus for free at AnnualCreditReport.com.
Building a Credit Report With All the Credit Bureaus
Optimally, you'd like to have a well-established and scoreable credit report with all three of the credit reporting agencies, eliminating the concerns about qualifying for a credit score.
If you do not have a credit score with all three of the credit bureaus, then it's a good idea to rectify that by establishing credit that will appear on all of your credit reports. The first step in that process is applying for credit with lenders that report information to all of the credit bureaus. This will ensure that while you're managing your loan or credit card account, the history of that account will appear on all of your credit reports and will likely qualify you for all scores calculated by the FICO® and VantageScore models.
In addition to applying for credit with mainstream lenders and credit card issuers, you can also employ other strategies to help you build credit. These include:
- Apply for a secured credit card. With secured credit cards, you make a deposit with the financial institution and it, in turn, will issue you a credit card with a credit limit that is equal to or close to your deposit. Before opening a secured card, be sure to verify with the issuer that it reports to all three of the credit bureaus.
- Get a credit-builder loan. A credit-builder loan is exactly what it sounds like. Credit-builder loans are small-dollar loans with a short repayment period. The loans are reported to the credit bureaus and, thus, help you to establish a credit report.
- Become an authorized user. You can have your name added to an existing credit card account that belongs to another person, such as a parent or a spouse. Most of the time the card issuer will report the history of the account to your credit reports, thus helping you to build, rebuild or establish a credit report. You will not have any liability for the debt incurred on the card.
To fully enjoy all of the benefits of and access to inexpensive financing, you'll need to have solid credit scores. That means you'll need to have credit reports that meet all of FICO®'s and VantageScore's minimum credit scoring criteria.
This is easily accomplished by building credit with lenders that report your information to all three of the credit reporting agencies on a monthly basis. After you've opened even one account with a mainstream lender, you will eventually qualify for a credit score with all of the credit reporting agencies.