There are hundreds of algorithms companies use to score consumers, and even the most common credit scoring company has dozens of models. Fair Isaac Corp. more commonly known as FICO, has about 50 scores (a 2012 report from the Consumer Financial Protection Bureau puts that number at 49).
How can there be so many variations on a single score? It’s a confusing issue to consumers, particularly because “the FICO score ” sounds like a single score. For starters, the information on each of your credit reports from the three major credit reporting agencies — Equifax, Experian and TransUnion — may vary, so that alone can give you three different numbers from one credit score model.
However, one of the biggest reasons there are multiple FICO scores is because lenders assess borrowers differently, depending on the loan product. For example, a lender considering you for an auto loan will be much more interested in your history of auto loan payments than a lender considering you for a personal loan.
FICO has different models tailored to the loan product the consumer applies for. On top of that, FICO creates custom scores for its clients, and FICO has updated its general formulas over the years. In 2014, the company announced FICO 9, its newest version of the basic algorithm, which does not include paid collection accounts in its scoring system and counts medical debt differently than other debts, because medical debt is often an unplanned expense beyond the consumer’s control.
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Perhaps the most puzzling part when it comes to understanding FICO scores (or any credit score, really) is not knowing which model your potential lender uses. You might check one of your FICO scores religiously, but
you still might not know exactly what a future creditor sees when it processes your application. While it’s important to check your credit scores — you should do so regularly, and there are many ways you can see your scores for free — keep in mind that scores fluctuate and you also can’t be certain what your lenders look at. The best thing you can do is focus on the fundamentals of good credit: Make payments on time, keep your debt levels low, avoid closing old accounts if possible, maintain a good mix of accounts and apply sparingly for new credit.
FICO has a program called FICO Open Access that allows customers of some partner institutions — like Discover and Barclaycard — to see their FICO scores for free. You can also get two free credit scores from Credit.com every 30 days, with a progress report of how your credit has changed over time.
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Christine DiGangi covers personal finance for Credit.com. Previously, she managed communications for the Society of Professional Journalists, served as a copy editor of The New York Times News Service and worked as a reporter for the Oregonian and the News & Record. More by Christine DiGangi
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