Credit Score FAQ

Credit score questions and answers help you understand the fundamentals of how credit scoring works. We’ve included some of the most frequently asked questions for you. With this credit score FAQ and consumer credit laws you’ll have an advantage negotiating with collectors, credit bureaus and creditors.

What’s a credit score?

It’s the number assigned to your credit record that reflects what the credit bureaus believe is your creditworthiness. It is usually 3 digits. Your credit score can vary depending on many factors including the calculations used by different credit score vendors.

For example, the Vantage score is slightly different than your FICO score. The two scores closely track each other and if your Vantage Score is good then you are likely to have a favorable FICO score. However, some factors involved in each are given different importance for calculating the actual scores.

Other credit scores may be used when you apply for credit or circumstances that involve your creditworthiness (such as employment and renting an apartment).

How are scores calculated?

The credit bureaus are secretive about the exact algorithm used to calculate consumer credit scores. They have published some of the general factors used in scoring formulas.

A consumer’s credit score is obtained primarily from 5 categories of data:

• Credit utilization, the amount of debt carried
• Number and type of consumer credit inquiries
• Types of credit (installment vs revolving accounts)
• How long you’ve had your accounts and how many are current
• Payment history (including defaults and collection accounts)

What is FICO?

Most lenders and others making decisions about your credit have used the FICO. It was developed and patented by the company formerly known as the Fair Isaac Corporation (which is where the acronym “FICO” originates).

FICO scoring measures your debt payment history together with other financial information. The mathematics behind the FICO scoring system are kept secret. However, factors influencing the score are known to industry experts who then communicate them to the public.

The traditional FICO score range falls between 300 and 850 maximum. The FICO company revealed that in 2012, 37.2% of consumers’ classic FICO scores were upwards of 750 to 850. Following these statistics, the median FICO score in 2011 was 711.

Is FICO the only important score?

For many years FICO was the only score most people encountered. Then in 2006, Experian, Equifax and TransUnion (the “Big 3” credit bureaus) made an alternative to FICO available for evaluating consumer credit profiles. This is called the “Vantage Score“.

Vantage credit score falls within a range of 501 to 990. This is one important difference with FICO scores, which run along a scale from 300 to 850. Vantage is marketed more for evaluating submprime lending risks than FICO.

According to most industry experts, 85% – 90% of all consumer credit transactions use FICO for evaluating creditworthiness. There are other scoring systems. However, creditors do not rely on them as much as they do FICO and Vantage scores.

Am I able to check my own credit?

Credit scores are not available from government sources. However,  you can order your credit report from private companies that make it available for a fee.

You may have heard of the federal law that allows you to obtain your credit report free at least once each year. This does not include your credit scores. If you want them at the time you request your free report, then you must pay a fee. This is usually charged at the same time you order your report. You can also purchase only your credit score without the report.

The two primary scores marketed to the public are FICO and Vantage. Usually you’ll want to know your FICO score. Make sure you know which score you are paying for and will be receiving. You can read more about checking your credit score on this website.

Does applying for credit help my score?

Loan Officers have always advised borrowers to not apply for credit too often. This is because too many credit inquiries can negatively affect the credit score. They know that credit bureaus view frequent credit checks suspiciously.

True, someone who is having difficulty with their credit is desperate and applying more often to be approved. So filling out credit applications tends to lower credit scores, especially the FICO. Credit reporting agencies have modified their scoring formulas to allow several inquiries within a short time, believed to be from about 2 weeks to 45 days.

This allows anyone shopping for credit approval to not be punished with a drop in their credit score. Most experts still advise consumers to not let anyone run a credit check until it’s necessary to make a purchase. This means you should wait until you are far along in the transaction to have your credit checked.

Can scores be improved?

Besides generic advice to “cut spending, pay bills on time and avoid going over credit limits,” there are consumer laws and methods that anyone can use to raise their scores. These methods usually involve repairing the consumer’s credit profile. Credit scores rise along with a consumer’s improved credit history.

Credit repair experts can help you boost your score and so can “DIY” (do-it-yourself) methods. You can read about how to improve your credit scores on this website.