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Credit Reporting

What you should know about your FICO score

Your credit score is one of the most popular measuring sticks when it comes to rates on personal or auto loans, credit cards, housing opportunities, and even insurance.

Generally, three-digit credit scores range from 300 to 850. The higher your number, the better your credit score as you're perceived to be a more responsible borrower.

How those scores are calculated and the differences between scoring models (including FICO) remains a mystery for many consumers. But, it doesn’t have to be confusing or complicated.

We spoke with Rod Griffin¹, director of consumer education and awareness at Experian, who answered some of the most common questions about FICO and credit scoring.

Is a FICO score the same as a credit score?

The short answer is yes. FICO is the oldest, largest and most recognized credit scoring company. Founded in 1956, FICO quickly became a trusted way for lenders to measure consumer risk.

“FICO is the dominant scoring company, the best known brand in the scoring world,” Griffin said.

But while FICO is a household name, it is simply one credit scoring company among many.

“FICO score is kind of like saying Kleenex,” Griffin said. “It’s synonymous with credit score. But a credit score can come from a number of different sources and developers.”

Each scoring company develops their own algorithms, “and they may have different scales. There are lots of different scores,” Griffin said.

What other companies give credit scores?

FICO remains the biggest and most popular credit scoring company but VantageScore, a relatively young credit scoring company launched in 2006, has quickly become a major competitor and is now in the No. 2 slot among lenders.

“A credit score is any algorithm that is used to analyze the risk represented by the information in a person's credit history of them defaulting,” he said.

There are also many other, smaller credit scoring companies other than FICO and VantageScore. And some lenders may come up with their own scoring models.

“At Experian we have in our system, something over 200 scores that we can apply,” Griffin said.

So, if someone wants to run a credit report through a specific scoring algorithm that’s stored in the Experian computer database, they run a person’s credit report through that particular scoring model and get a score.

How do the credit bureaus know which credit score to report?

It is a common myth, he explained, that credit bureaus create your credit score. The three main credit bureaus—Experian, Equifax and TransUnion—are actually the keepers of the credit report that is used to compute your score, but not the score itself.

FICO, VantageScore, and the other scoring companies own the algorithm used to generate the numbers that make up your credit score and they contract with the credit bureaus to run credit reports through their proprietary scoring model.

“The credit bureaus don't make determinations about the information in the report,” Griffin said. “We don't determine whether it's good or bad, whether you should qualify or not.”

Griffin describes it like a school paper. “We're the paper,” he said of Experian and the other credit bureaus. “We represent the school paper, credit scores represent the grade, and the teacher is kind of like a lender in the middle.”

Are there different types of scores for different types of loans?

Absolutely. Not only are there many different scoring companies, each company can have multiple different scoring algorithms.

FICO 8 is the most popular credit score in the world. It ranges from 300-850.

“There are different scores for different types of lending, so there's not just one FICO score — another common myth,” Griffin said. “There are also FICO scores specifically for auto lending and there are FICO scores specifically for mortgage lending.”

“There are custom scores specifically for credit card offers,” he added. “There are scores that are specifically designed for a credit union to use as opposed to scores for a national bank because their customer base is different and the things that represent the risk are different.”

If I have a good FICO score, will I have a good VantageScore?

Because all credit scores rely on the information in your credit report, such as your debt amount, credit utilization ratio, payment history, credit history length, and credit mix, your scores across the different scoring models should all be generally in the same ballpark.

“If you take care of your credit report, all of your scores will take care of themselves because they're going to reflect that information,” Griffin said.

Griffin said he collects four or five different credit scores throughout the year and keeps tabs on the information in his report. His scores usually have a range of about a 100-point difference due to the different algorithms used to create each score.

“You will see similar scores, but very rarely would you see exactly the same score from VantageScore and FICO,” he said. “But that's okay, because what you will find is that if you have a good score in one system you will (likely) have a good score in the other.”

Will student debt affect my credit score?

Your credit report treats your student loans like any other installment loan, such as a car payment.

“If you're making those loan payments on time and it shows that positive history, they're going to help your credit history in your credit scores,” Griffin said. “Fall behind and unable to pay the student loans? That’s going to hurt your credit scores.”

So, what can you do to raise my credit score? Griffin said there are “two universal truths” to earning and keeping a good credit score.

First and foremost, he said, “you have to pay your bills on time every single time. Late payments will hurt your credit scores more than anything else.”

Late payments, which are considered late when they haven’t been paid by the end of the 30-day billing cycle, he said, make an “immediate and significant impact to your scores.”

The second, he said, is called the utilization rate, which is your credit card balance to credit limit ratio. Someone with a zero credit card balance or a low credit card balance and a high credit limit will likely receive a better score than someone who keeps their cards maxed out.

“Keeping your balances as low as possible on your credit cards is the second most important factor in credit scores. And that’s across the board. You never want your balances to be more than 30 percent of your credit limits,” he said. “The lower the better. People with utilization rates of less than 10 percent (usually) have the best scores.”

And whether you are building good credit or repairing mistakes, remember it takes time. “There is no quick fix,” he said.

How else can I increase my credit score?

Even a few small changes can go a long way towards increasing your credit score over time. In addition to Griffin’s advice on making your payments on time and keeping your balances low, here are some other ways to go about boosting your credit score.

  • Fix incorrect info on your credit reports:

    Start by looking for anything that’s not right when you check your credit reports. This could be anything like a wrong address, a credit account that you didn’t open, or an unsolicited hard credit check (when a lender pulls your credit report because you've applied for new credit). Dispute anything that isn’t right directly with the credit bureau.

  • Pay off some debt:

    You don’t have to pay off every penny of debt to make a difference. Even starting with paying off credit cards or loans bit by bit can help raise your credit score over time.

  • Don’t open several new accounts at once:

    Every time you apply for a new loan or credit card, the lender performs a hard credit check. Each of these credit checks will lower your score by a few points. Plus, taking out more than one loan at a time can make you look like a riskier customer.

  • Consider a Varo Believe Credit Card:


    Varo Believe Credit Card

    offers no hard credit check to apply, no minimum security deposit, and no annual fee. It can potentially help you build your credit and keep track of your progress, provided you are responsible with your spending and make on-time payments².

  • Keep your old credit cards open:

    When you decide to stop using a credit card, it can be tempting to want to close the account to simplify your life—but hold that thought. Keeping it open can help with your credit history, which directly affects your credit score. Simply put, more years of credit equals a higher credit score.

While a credit score can be an important component of qualifying for a loan or credit card, and a higher score can help you get lower rates and better terms, a score is often just one of many factors that creditors consider. Depending on your circumstances, other aspects outside of your score may work in your favor, including your credit history, debt-to-income ratio, and history with the financial institution you’re looking to borrow from.

2The Varo Believe Secured Credit Card is designed to help you build your credit; however, a variety of factors impact your credit including payment history, utilization, derogatory marks, account age, total number of accounts, and inquiries--not all factors are equally weighted. Building your credit may take time and is a process, but the Varo Believe Card may be able to help when you consistently make on-time payments. To be eligible to apply for the Varo Believe Card, you need to have received Incoming Deposits of $200 or more in the past 31 days to your Varo Bank Account and/or Savings Account. Incoming Deposits include any deposit into your Varo Bank Account and/or Savings Account from any source outside of Varo, Varo to Anyone transfers between Varo customers, and final dispute credits.

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