There was a time when your credit score was a pretty straightforward concept. It was one number, and the higher it was, the better off you were, at least from a borrowing perspective. You have probably noticed that these days, in addition to your FICO® score, you may now have a VantageScore and even an UltraFICO™ score. Let’s look at all three to decide what you need to worry about (or not).
VantageScore
Equifax®, Experian®, and TransUnion®, the three major credit reporting agencies, combined forces to establish another credit scoring model, the VantageScore. They kept the 350 – 850 scoring range, but how this model evaluates various credit behaviors is somewhat different from the FICO method. For example, both ways consider late payments, credit utilization, length of credit history, etc., but they assign different levels of importance or weight to these criteria.
FICO®
In 1981, the Fair Isaac Corporation, FICO, created the first credit risk score and quickly became the primary credit scoring company in the United States. Potential lenders want to know how likely we are to pay them back on time whenever we apply for credit. Before FICO scores came along as a standard way to measure credit risk, individual lenders more or less used their own criteria to determine whether or not to lend you money.
Today, many lenders rely on your FICO score instead. A FICO score is a three-digit number ranging from 350 to 850 (or 900 for some industries), with a higher score indicating better creditworthiness.
What does it mean for you?
While it can be confusing to figure out why your FICO score is one number and your VantageScore is a different number, the numbers themselves are not the be-all and end-all. Yes, a higher score is better than a lower score, but the more critical measures of your financial well-being remain the same, regardless of the credit scoring model:
- Do you have enough extra cash on hand (emergency fund)?
- Are you saving enough for retirement?
- Do the bills get paid on time (no late payments)?
- Are you using a strategy to pay off consumer debt quickly?
It is still a good idea to keep track of your credit scores to see if anything unusual might be going on rather than overfocusing on your exact scores, it might be better to focus on the bigger picture: your overall financial well-being.
Please update your browser.
