Introduction It is a number that defines your financial status and is one of the most important numbers in your life. It can decide on your eligibility for credit cards, loans, mortgages, rentals, and many other things. So, when there are several credit scoring models provided by various credit bureaus and lenders, how can you determine which score is the most reliable? Through this article, the author will describe the various credit score models and discuss the strengths and weaknesses of each to establish which is the most accurate.
FICO Value When it comes to estimating consumer credit risk, lenders most often use the FICO score as their evaluation tool. Fair Isaac Corporation, the business developing the FICO rating system, is shortened as FICO. The market already has FICO 8, FICO 9, and FICO 10. Their range is from 300 to 850; the higher the number, the less credit risk is projected. The information on your credit records is what FICO bases on your score calculation. This score covers elements such as credit history duration, new credit, credit mix, payment history, and credit utilization level.
Since FICO ratings have been scientifically shown to very accurately forecast credit risk, 90% of the most powerful creditors utilize them. FICO also produces version-specific ratings like FICO Auto Score and FICO Bankcard Score that concentrate on the default risk for the specific kind of credit products solely. FICO scores have one benefit in that they may be acquired from Experian, TransUnion, and Equifax, the three credit agencies This implies that when evaluating your application, lenders might average the three ratings. A drawback is that the bureau a lender employs to do the check will affect your score.
VantageScore Three credit reporting companies— Experian, TransUnion, and Equifax—developed VantageScore in 2006 as an alternative credit rating method for FICO scores. Comparatively to the FICO score, VantageScore falls between 300 and 850. Payment history, credit card age and history, credit use percentage, total amounts outstanding and other debt, and credit mix all factor here. FICO and VantageScore vary in that the latter scale has been adjusted to assist clients who previously could not earn a score owing to inactivity in obtaining a score ranging from 300 to 850.
VantageScores claims that these new credit customers have superior credit risk assessment than FICO scores, which would rank them as having no score at all due to inactivity. Still, studies by third parties clearly show that VantageScores are somewhat less reliable than FICO ratings on average. Still, they provide lenders with an excellent window into an applicant's creditworthiness. Its simplicity—its rating range matches FICO—allows lenders to understand it quickly. The main disadvantage is that, compared to FICO, adoption among lenders up until current is somewhat limited.
Credit Karma Score It offers credit scores and credit reports to its customers and this is done in partnership with TransUnion. However, the score that Credit Karma provides is the VantageScore 3. 0 instead of the FICO score. But as they state, Credit Karma’s scores do not reflect the ones used by lenders, so it can only give you a basic idea of your overall credit health. They also caution that their credit scores are typically higher than FICO scores, so people might think they have more credit worth than they do according to the FICO score that lenders would use.
However, using Credit Karma to check the scores often is not a bad idea because it can allow you to look for any sudden changes on your credit reports as well as things that affect your scores such as hard inquiries and newly opened accounts. But to get the best glimpse before going for new credit, it is advisable to check with AnnualCreditReport. com and buy FICO scores from MyFICO. com.
Which of My Credit Scores is the Most Reliable? Combined FICO 8 scores are still recognized as the most accurate credit score model that reflects credit risk, based on numerous types of research. FICO scores are widely employed, and 90 of the 100 largest lenders rely on these scores to extend credit. This is why getting your FICO scores from MyFICO. com will provide the most accurate representation of what score lenders will see when you apply for credit.
The two closest in accuracy to ICS may be FICO 9 and VantageScore 3. 0. While both also vary from 300 to 850, research indicates that FICO 9 remains more accurate in terms of risk prediction. That said for someone with little credit history, a VantageScore may give lenders a more complete picture whereas FICO may show no score at all due to lack of history.
It is also important to understand that you do not have just one credit score that you can keep track of. Each scoring model is going to produce a score per credit bureau for any given scoring model. Therefore, use AnnualCreditReport. com to get reports and be familiar with scores across the bureaus: Experian, TransUnion, and Equifax when preparing to take a large loan to understand how you will be rated by the credit company. Nevertheless, if you want to achieve the highest figure that reflects the real state of your credit, it is necessary to focus on your FICO 8 score.
Conclusion FICO scores are the most accurate credit scores and are also preferred by lenders in making their decisions. Especially, FICO 8 and even more recently FICO 9 are reputed to be the most accurate. But understand that you have multiple scores across bureaus and scoring models. It is important to monitor your credit scores as well as several things affecting your reports frequently. Try to get the highest number for FICO 8 at all costs because that will give you the best possible idea of your credit health before you go out to get credit.
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