November 13, 2017
Written by Gabriella Allen, La Casa de Esperanza
This blog is one of a series from the Center for Financial Stability at La Casa de Esperanza. Check out previous blogs on ways to maintain a good credit score, car-buying tips, and smart apartment shopping.
FICO Score, VantageScore, NextGen Score, oh my! If you have ever applied for a loan, you have most likely been given some version of your credit score. For some, it’s no surprise. For others, this can be confusing because they just checked their (fill in the blank) app and it was 50 points higher! Businesses and lenders use different types of credit scores with some estimates of there being over 1,000 types.
Here are some helpful tips on the differences between scores how you can be a more prepared consumer in a credit-based world:
What is a credit score?
Simply put, your credit score gives a lender a number that shows how likely you are to pay a loan back on time. Your score factors in lenders’ decisions to offer you a mortgage, car loan, or credit card. Your score can also affect the type of interest rates you pay. However, credit scoring is far from simple. FICO (Fair Isaac Corporation) was the leader in credit scoring until other models appeared more recently. FICO and other credit scoring companies use different, complex mathematical formulas based on the contents of your credit report to determine your “creditworthiness”. To further complicate matters, FICO has many different credit scoring models and each of the three credit bureaus also have different scoring models.
What does all this mean for you?
Despite the sometimes confusing credit scoring models, you as a consumer can get a fair idea of where you stand by checking your FICO Score. 90% of America’s lenders still use your FICO Score to decide whether to offer you a loan and what your interest rate and terms will be. You cannot buy or access the customized FICO Scores that lenders will have, but there are plenty of educational tools available for you to get an idea of what range you sit in and which direction you’re headed.
How to make it work for you-
Don’t get too caught up in the number. Credit scores you get through online providers can give you a good idea of the range you fall in and how lenders may judge your “creditworthiness”. Use that range as a guide for where you stand. Use your actual credit report as a guide for specifically what to work on to improve your credit score.
Thanks to the support from United Way of Greater Milwaukee and Waukesha County, you can have a full TransUnion credit report and FICO Score pulled at no cost and with no impact on your score at La Casa de Esperanza’s Center for Financial Stability. Schedule an appointment with a Financial Coach today!