Understanding Credit Scores

I have a VantageScore credit score in the 800s, but my FICO credit score is only 722. Why are the scores different?

There are several types of credit scores, and each is compiled in a slightly different way. The most popular, the FICO score, has a range of 300 to 850. The VantageScore -- a newer rating created by the three credit bureaus that some lenders (such as some auto dealers) may use instead of the FICO score -- has a range of 501 to 990 and a letter grade. In both cases, the higher the score, the better.

But rather than fixate on the different scores, see how they stack up against the scores of other borrowers. That’s what influences lenders’ decisions about whether to extend credit to you and at what rate. For example, a VantageScore in the 800s is equal to a B, and a FICO score of 722 is very good, too (but you generally need a FICO score of 740 or higher to get the best mortgage rates). See the credit education section of MyFico.com and the consumer section of VantageScore.com for details.

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The key factor in determining both scores is your payment history -- paying your bills on time -- followed by the amount of available credit that you’ve used (called your “credit utilization ratio”). Try to keep your credit card balances to less than 20% of your available credit -- even if you pay off your bill in full each month. Paying down your credit card balances is one of the fastest ways to improve your credit score.

Also, check your credit report for errors, which can bring down your score. You can get a free credit report from each of the three bureaus every 12 months at www.annualcreditreport.com.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.