Credit scores are important indicators of creditworthiness. Lenders use these numerical values to assess risk before extending credit or financing terms with applicants. These scores will often determine the interest rates available and whether or not they’re favorable.
The most widely used type of credit score is one that is calculated using the FICO scoring model along with data from two of the main credit reporting agencies in the U.S. Consumers can get FICOs from Equifax and TransUnion. Experian terminated their relationship with FICO in 2009 and it no longer offers FICO based scores.
Equifax and TransUnion FICO scores may differ from each other. Each one is calculated from each agency’s consumer credit files. Because creditors and lenders do not always report their data to all three agencies, credit files will sometimes be very different from each other.
FICO scores range from 300 to 850. The higher the score the more creditworthy it is and the less risk is associated with the applicant. The average FICO score is 687 and the median FICO score is 723. A general breakdown by financial advisor Suze Orman goes as follows:
700-759: Very Good
687: Average Score
620-659: Not Good
500-579: Very Poor
FICO scores are calculated from the data on consumer credit files stored at each of the credit reporting agencies. To diagnose one’s credit score, a person should analyze the areas that contribute the most to the calculation of one’s FICO score. The components used to calculate the score is as follows:
Payment history 35%
Amounts owed 30%
Length of credit history 15%
New credit 10%
Types of credit used 10%
One alternative to the FICO scoring model is the VantageScore model. This algorithm was developed by Equifax, Experian and TransUnion in 2006. Some say it’s a more flexible scoring model, because it takes in more factors and it helps those with lower FICO scores look more favorably. Because it is still relatively new, it has not gained popular acceptance among creditors and lenders yet.
The VantageScore is computed differently than the FICO score. It also has a different scoring range and different assessment scales. It starts from 501 and goes all the way to 990. The national VantageScore average is 736. It is generally broken down into these categories or grades:
A: 901-990: Super Prime, top 11% in population
B: 801-900: Prime Plus, top 40% in population
C: 701-800: Prime, top 60% in population
D: 601-700: Non-Prime, lowest 38% in population
F: 501-600: High Risk, lowest 19% in population
Vantage scores will seem to be higher than FICO scores. That’s because they use a different scoring system and range. Like FICO, the higher the VantageScore is, the better the score is. The VantageScore uses these components to calculate its score.
Payment History – 32%
Credit Utilization – 23%
Credit Balances – 15%
Depth of Credit – 13%
Recent Credit – 10%
Available Credit – 7%