FICO derived from Fair Isaac Corporation which is the company that developed the most popular credit scoring system in the United States. FICO score is widely adopted by over 90% of lenders as they make lending decisions.
Whenever you apply for a credit card, mortgage, auto loan or any other credit; the credit provider pulls your FICO score from one or any of the three major credit bureaus namely Experian, Trans Union or Equifax. Different bureaus might have slightly different information about your credit history and, therefore, might assign you multiple FICO scores. The important thing to grasp is that FICO is the score that is exclusively employed by credit professionals to make credit decisions.
What is Credit Karma score?
By signing up for a Credit Karma account, you can get your TransUnion and Equifax credit reports for free. Also, for each report, Credit Karma provides a VantageScore credit score based on the model of the three credit bureaus, including Experian, TransUnion, and Equifax.
The main difference between FICO and VantageScore is that FICO uses a different formula and model as compared to VantageScore. This means that even though the data in the credit report may be the same, the final score may be very different.
Why does my FICO score lower?
If your FICO score is a lot lower than your Credit Karma score, here are some possible reasons why:If your FICO score is a lot lower than your Credit Karma score, here are some possible reasons why:
1. They utilise different credit report data – The difference in the information delivered by the four credit bureaus can cause disparity in scores.
2. The same data produces different scores – the difference in the algorithm results in different scores.
3. FICO credit score has various generations- Currently, the most popular FICO is the FICO 8, but some lenders still use FICO 7, FICO 6, and even older models.
4. Credit versions differ – You have over 50 credit scores. FICO models are customized and are used by auto, mortgage, and credit card lenders.
While it is quite puzzling to find out that there are actually numerous credit scores issued in the market, the most important fact which counts is the score used by the lender to arrive at his/her decisions. And in most cases that will be a FICO score. Therefore, if, for example, your goal is to get approved or have the lowest interest rates possible, then work on your FICO score the most.
How to Boost Your Real FICO Score
Whether you presently have a high credit score or a low credit score, there is always something you can do to improve your credit. Here are some top ways to increase your FICO credit score:Here are some top ways to increase your FICO credit score:
? Timely payment of all outstanding bills – The most important aspect of a credit score. If necessary, enroll in autopay.
? Maintain low Credit card balances – High balance is bad. It is recommended that the proportion of client-directed decisions should be less than 30%.
? Minimize hard inquiries – Excessive credit checks portray desperation. Do not apply for credit that you do not need.
? Length of credit history – In most cases, longer histories are beneficial to your score. Do not shut the previous accounts until they are not required.
? The three major credit reports – Go through them and fix any wrong information that might be affecting your score.
? Credit utilization ratio – A good credit utilization ratio is preferred because it shows that you are using your credit wisely.
The key, of course, is to be consistent and practice responsible credit behavior over a long period of time. Comparing the scores on Credit Karma is still beneficial, but it’s important to keep in mind that the difference in scores is relative to other people who use Credit Karma – not to actual FICO scores, which is what is reported when a person applies for a new line of credit.
Over to You
It is important to make sense of your credit situation by knowing why Credit Karma score does not necessarily equal FICO score. It’s an irritating thought even when expressed numerically but taking positive financial actions will get you there.
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