When you view your credit score, you're likely to see a different three-digit number depending on whether you checked your score online, on your banking app or via another means.
Although you have multiple credit scores, they're mainly calculated by two companies: VantageScore and FICO, which are the two main credit scoring systems used by the majority of lenders to evaluate how well you're managing your credit.
WATCH ANYTIME FOR FREE
Stream NBC10 Boston news for free, 24/7, wherever you are. |
"Think of those like Coke and Pepsi," John Ulzheimer, a credit expert who formerly worked for FICO and Experian, tells CNBC Make it. "You have FICO-branded scores and VantageScore-branded ones."
But there are a few differences between the two. For one, each company calculates your score differently.
Get updates on what's happening in Boston to your inbox. Sign up for our News Headlines newsletter.
Here are the categories used to calculate your credit score according to the VantageScore model:
- Extremely influential: Balance and available credit, total credit usage
- Highly influential: Credit mix and experience
- Moderately influential: Payment history
- Less influential: New accounts opened and length of credit history
VantageScore was created in 2006 by the three major credit bureaus: Experian, Equifax and TransUnion. Its scores are used by a variety of financial and nonfinancial institutions for lending products such as credit cards, auto loans, mortgages and tenant screenings, according to the company's website.
Money Report
Additionally, VantageScore uses data like your rent and utility bill payments to create your credit profile and can calculate your score after your credit account has been open for at least one month, per the company's website.
DON'T MISS: The ultimate guide to negotiating a higher salary
FICO credit scores, on the other hand, have been around for over 25 years and are more commonly used. In fact, they are used by 90% of the top lenders in the U.S. in order to asses a potential borrower's credit risk, per FICO's website. And your credit history needs to be at least six months long in order for FICO to generate your score.
Although FICO scores are also used by lenders when you apply for credit, a mortgage or an auto loan, FICO weighs the factors it uses to calculate its credit scores differently.
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
Whether its VantageScore or FICO, the key to boosting your credit score and maintaining a healthy one comes down to three key steps, says Matt Schulz, LendingTree's chief credit analyst:
- Consistently paying your bills on time
- Keeping your balances as low as possible
- Avoiding applying for too much credit too often
"If you do these things consistently for years, your credit is going to be just fine," Schulz says.
Want to earn more money at work? Take CNBC's new online course How to Negotiate a Higher Salary. Expert instructors will teach you the skills you need to get a bigger paycheck, including how to prepare and build your confidence, what to do and say, and how to craft a counteroffer. Pre-register now and use coupon code EARLYBIRD for an introductory discount of 50% off through Nov. 26, 2024.