Why Do You Have Multiple Credit Scores?

Yes, it’s complicated. But there’s a reason why most people have dozens of three-digit credit scores. Here’s what you need to know to keep it all straight. Building or maintaining one credit score can feel daunting enough. But the truth is, most of us have dozens of slightly different scores out there that are used by lenders to decide if they should take a risk and loan us money and how much interest we should pay.

A credit score (which can range from 300 to 850) is like a report card that stays with us throughout our lives and reflects how we handle money. The three-digit number is typically defined by the amount of debt you owe if your bills are paid on time, the number of credit cards you have (and how long you have had them), and if you have filed for bankruptcy in the last 10 years, among other factors.

There are three major consumer credit reporting companies — Experian, Equifax and TransUnion — that collect information about you from financial institutions, your credit card issuers and public records that are then used to determine your credit score. One commonly used score is the VantageScore® — which is the one you get through My Credit Rx inside online banking — that’s based on a scoring model developed in 2006 by the three bureaus mentioned above.

Here’s where the multiple versions of your score come in. Using different mathematical algorithms, Vantage and others created industry-specific credit scores which can include separate scores for businesses such as auto lenders and credit card companies. Each scoring version is calculated by modifying how certain parts of your credit history are weighted. When it comes to mortgage lenders, though, they tend to pull a score from all three credit reporting agencies and then typically use the lowest of the three to determine if you get a loan and how much money you will be charged in interest. The higher your score, the less of a risk you are and the lower your interest rate should be.

Once you give permission on a loan application, a potential lender may look at one score or more, from the same scoring company or all three, and they may also pull from different models for the same loan. What can be frustrating is that you likely won’t know, or have any control over which score(s) your lender reviews. You can always ask but financial institutions are not obligated to tell you.

Some good news for borrowers in recent years is that VantageScore now incorporates something known as trended data into how it computes credit scores. Trended data can be considered a way of looking back at someone’s history to see if they are making progress over time. So instead of seeing your score as a quick snapshot of bill-paying and other credit behavior, it rewards those whose credit habits are moving in the right direction, such as paying down debt and not carrying large balances on credit cards. One other change in the last few years is that unpaid medical bills are not considered until after 6 months now on your credit reports.

How can you best influence all of your credit scores?
To build or maintain good scores, pay your bills on time every single month, keep your balances low by using only 30% or less of what’s available to you. Also, don’t apply for credit cards you don’t truly need and don’t close old accounts you no longer use unless they are charging fees.

You should also make sure to check in on your credit score and reports frequently to quickly address any potential errors that could be dragging down your scores. NIHFCU members can now do this with free access to their score and more through My Credit Rx, inside online banking or our mobile app.

Register for My Credit Rx the next time you are in online banking

With My Credit Rx, powered by SavvyMoney®, staying on top of your credit wellness is free and easy. Track your credit score and view your report, receive credit monitoring notifications, use our interactive simulator to help improve your score, and much more!