To help you learn more about your personal credit rating, we've broken it down for you. Our helpful infographic illustrates everything you need to know about both the FICO and VantageScore 3.0 credit
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Checking your credit report every year gives you a snapshot of your financial standing, but did you know you have more than one credit score? In the U.S., 3 independent bureaus keep tabs on your financial activity, and the numbers that each one calculates don’t always agree. Due to differences in criteria, preferences in score types, and variables in reported information, it’s likely you have 3 scores instead of one influencing how lenders and other institutions determine your level of monetary responsibility.
Every time you make a payment, request a new credit card, take out a loan, or take any other financial action, the institution you’re dealing with has the choice to report it to one or more of all 3 bureaus. Equifax, Experian, and TransUnion are always collecting information about your monetary habits and other markers of financial viability, including:
Whether or not you have a criminal record
If you’ve ever filed for bankruptcy
Your current job situation
Even where you live
Two major factors affect how much your score differs between all 3 bureaus. One is the voluntary nature of reporting. Even though banks, credit card issuers, and utility companies can share your information, not all of them do so with regularity. This could lead to each bureau having different data on file. Since the second confounding feature is a lack of communication between the bureaus, information may never be unified across the board.
Credit bureaus issue scores based on the FICO scale, a VantageScore, or both. Experian uses FICO exclusively while Equifax and TransUnion provide both numbers. Regardless of which is used, the score still shows your approximate level of “credit risk” at the time the report is requested.
Although FICO is still the most well-known way to calculate and convey credit scores, the bureaus came together in a joint effort to create the VantageScore in 2006. Using the same reporting range of 300-850, VantageScore weighs financial factors differently and excludes certain variables, such as paid collection accounts. VantageScores are also available sooner than those from FICO, making it easier for people to obtain loans or financing even if they’re just beginning to build a credit history.
Differences also exist within the FICO scoring system. Depending on why your credit score is being checked, the number may be reported as a FICO score specifically for getting an auto loan, issuing a credit card, or obtaining a mortgage. FICO 8 is the most widely used version, but the new FICO 9 will consider third-party collections, medical collections, and rental history differently when calculating scores.
A request for your credit score can be a “hard pull” or a “soft pull.” Soft pulls have no effect on your rating and may be performed by employers doing background checks, landlords looking into your history, or credit card companies determining if you qualify for a special offer. Requesting your own free annual credit report also counts as a soft pull.
Hard pulls occur when you apply for a loan, put in a credit card application, or take steps to obtain any other kind of financing. Both FICO and VantageScore provide a window of time in which multiple hard pulls may be performed and only count as a single instance, so you have a little leeway when comparing interest rates and terms between lenders. However, even a single hard pull can knock your FICO score down five points or take 20 to 30 points off your VantageScore rating.
Your 3 bureau credit report is just one of many pieces of information considered by lenders and other institutions when checking your creditworthiness. Despite its complexities, it holds enough weight to affect your ability to:
Obtain auto financing
Get a personal loan
Secure startup funds for a business
Qualify for a high credit limit
Enjoy low interest rates on loans and credit cards
Errors, omissions, and fraudulent activity can all have a negative impact on your score, making it difficult to prove you can be trusted to handle money wisely. This makes it all the more important to be diligent about what gets reported to the bureaus.
In addition to your free annual report, there are many credit monitoring services available to keep tabs on all 3 bureau scores. The advantage of credit monitoring is that you have someone paying attention to the information being gathered in the months between your yearly credit check. Signing up for a monitoring service means there are eyes on your credit score all the time. They’re watching for malicious activity, discrepancies in the data shared by institutions, and other problems with the potential to damage your financial standing.
Our library of articles on credit scores and credit reporting companies insight to help you find the right credit monitoring and reporting service for you. Visit our collection of reviews to compare top options, get the details on sign-up processes, and learn more about what features are offered. Use this information to take control of your credit score, and you’ll always know what to expect when your yearly report arrives.