Understanding Your Credit
It’s more than just one number
by Angela S. Hoover,
A credit score is
a number that
credit risk, based on your credit
report at a particular point in time.
Potential lenders use this score
to evaluate the risk of extending
credit to someone.
There are three major reporting bureaus where all credit and
payment histories are reported
and stored: Equifax, Experian and
TransUnion. All three agencies
will have a different credit score
based on the information of its
credit report. Everyone has more
than 40 different credit scores,
not a single credit score as is often
stated in advertisements.
There are so many different credit
scores because banks and other
lenders use several different lenses
to evaluate people’s ability to
manage credit. A particular lender
may use one or a combination of
several credit scores to make a determination about an application.
These scores come from the three
bureaus and in-house models. The
two most popular scores are the
FICO and VantageScore.
FICO, the oldest model, was established in 1956 by the Fair Isaac
Corporation. Its primary business
is selling proprietary scoring systems to lenders and credit bureaus
to evaluate lending risk. Originally
used to calculate mortgage default
risk, FICO has evolved to apply
to many different types of credit.
Today, people have six FICO
scores: generic, mortgage, auto,
bankcard, installment loan and
personal finance. Additionally,
each of the three bureaus has their
own models to change the FICO
scores, each with distinct varia-
tions for the six categories. This
means everyone has a minimum
of 16 separate FICO credit scores.
The general weighted components
of a FICO score are:
• 35 percent – payment history
• 30 percent – amounts owed
• 15 percent – length of credit
• 10 percent – types of credit in
• 10 percent – new credit
The VantageScore was launched in
2006 as a collaboration between
the three credit bureaus to help
them compete with FICO. Just as
with the FICO scores, a VantageScore can be tailored for particular
lenders and types of credit.
In addition to these 20 or so
FICO and VantageScores, there
about 10 to 20 other direct-toconsumer, application risk and
customer risk scores (also called
behavior scores). Higher scores
are better. This is the breakdown:
• 760-850: Excellent
• 700-759: Very Good
• 660-699: Good
• 620-659: Fair
• 619 or less: Bad
Each lender will have their own
parameters from which to judge
your credit scores. And with the
flexibility to customize the FICO
and VantageScore models for specific purposes, hundreds of credit
scores are possible.
Everyone is entitled to one free
credit report a year at www.annualcreditreport.com. You can
also buy your report directly from
each of the bureaus or all three at
www.myfico.com. Widely adver-
tised third-party companies also
offer free credit reports. Read the
details to see which agency and
score the company is providing.
For instance, if the company uses
Experian, you will either receive
the FICO Experian Risk Score or
Here are some ways
to improve your
• Always pay in full and on time.
• Increase your credit limit if
• Pay off balances and don’t carry
revolving debt if you can avoid
• If you have bad or no credit,
don’t apply everywhere for
credit; an inquiry deducts about
five points off your score. To
lenders, six or more inquiries
indicates a likelihood of filing
• Don’t close old accounts; this
could lower your score, and if
you had a late payment it will
not disappear from your credit
2 HAMBURG JOURNAL
report just from closing the
• If you must close accounts,
close newer ones because longestablished credit relationships
• Avoid opening a lot of new accounts at once, especially if you
don’t have a long credit history.
A good rule of thumb is to have
no more than five credit cards.
• Fix bad credit. Work to have
inaccurate information removed. For more serious issues,
such as judgments, foreclosures
or bankruptcies, seek a credit
repair specialist for help.
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