credit & debt

6 Things to Know About Credit Scores

FICO isn’t the only number in town. The score that counts is the one your lender uses.

1. There is no single number.The compilers of the widely accepted FICO credit score allow lenders to customize their system, so different lenders produce different scores. Plus, each of the credit bureaus—Experian, Equifax and TransUnion—has a proprietary scoring model. As if that weren’t enough, the credit bureaus together invented VantageScore a few years ago to compete with FICO.

2. Different scales, different scores. FICO scores range from 300 to 850. You’ll need about 760 or better for the best mortgage rates, but a score of 720 should be sufficient to get you the best deal on an auto loan. About 10% of lenders now use VantageScore, which ranges from 501 to 990 and has corresponding letter grades from A to F. The best rates go to borrowers with scores in the A range (above 900). If you are denied a loan or given less than the best rate, a lender must tell you the score it used, along with the corresponding range and factors that adversely affected your score.

3. Do a credit checkup. You can monitor your credit yourself by requesting a free report once a year from each of the credit bureaus through www.annualcreditreport.com. But the free report won’t include your credit score; you’ll pay about $8 to get the credit bureau’s proprietary number. The majority of lenders (especially mortgage lenders) use FICO scores, however, so if you’re in the market for a loan, that is the one you want. At www.myfico.com, you can get your credit report and a FICO score from Equifax or TransUnion (but not Experian) for $20.

4. Free doesn’t always mean free. If you are just looking for a ballpark estimate of how you’re doing, go to www.credit.com. You’ll get free estimates of your FICO score and VantageScore along with Experian’s own PLUS score. Sites such as www.freecreditscore.com and www.creditreport.com, however, will give you a free PLUS score, but only if you sign up for a free trial subscription to a credit-monitoring service; if you don’t cancel in seven days, the service costs $15 to $20 a month. Likewise, at MyFICO.com, you can get your FICO score free, but only if you accept a trial subscription to the com­pany’s Score Watch system.

5. Maintain credit health. All of the scores measure the same factors from the information in your credit file, and they all indicate the same thing: creditworthiness. Try to keep your credit-utilization ratio low—that is, be aware of the amount of debt you have compared with the amount of available credit you have. A history of paying your bills on time helps. Having a variety of loans—for example, a revolving line of credit (such as a credit card), a car payment and a mortgage—will boost your score, too.

6. It’s a moving target. The information in your credit files at the bureaus is continually changing—and so will your score. If you’re about to apply for a loan, check your reports for mistakes that could impact your score. Pay down balances as much as possible. And if you’re not applying for a credit card or making a big-ticket purchase anytime soon, says Jason Alderman, a senior director at Visa, "it doesn’t matter what your score is tomorrow."

This article first appeared in Kiplinger's Personal Finance magazine. For more help with your personal finances and investments, please subscribe to the magazine. It might be the best investment you ever make.

Most Popular

The 15 Best Growth Stocks for the Rest of 2022
growth stocks

The 15 Best Growth Stocks for the Rest of 2022

A sharp selloff in growth stocks this year creates opportunity for keen investors. Here are 15 top-rated picks to consider in the second half of 2022.
June 28, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Best Internet Banks
online banking

Best Internet Banks

These institutions operate fully online, which decreases their overhead costs and allows them to offer lower fees and higher rates than many other ban…
June 23, 2022

Recommended

Financial Advice from America’s Founding Fathers
credit & debt

Financial Advice from America’s Founding Fathers

What money-management guidance can we glean from the words — and experience — of Benjamin Franklin, Thomas Jefferson, Alexander Hamilton and others?
June 30, 2022
When Will Student Loans Be Forgiven?
Paying for College

When Will Student Loans Be Forgiven?

Millions of Americans are waiting for the Biden Administration’s next hint, which could come later this summer, at how he’ll address the student loan …
June 27, 2022
Two Updates to Credit Reports
credit & debt

Two Updates to Credit Reports

The major credit bureaus are changing how they report information about medical debt and buy now, pay later.
April 26, 2022
Free Credit Monitoring for Equifax Breach Victims
credit reports

Free Credit Monitoring for Equifax Breach Victims

Millions of consumers whose data may have been exposed have been notified to sign up for the monitoring service.
March 17, 2022