Wednesday, January 28, 2009

How many credit scores does each person have?

I keep on getting comments and questions from people who think that they have only one credit score. So, let me set the record straight: Everyone has three credit scores, not just one.

Here's why:

There are three Credit Reporting Agencies which keep a record of all your credit history: Experian, Equifax and Transunion.

Each agency keeps its own records. So, for instance, if a credit card company has only told two of the three agencies that you have their card, the third agency won't have that card on your report. The information each agency receives about you is not necessarily identical, so you may end up with three very different credit reports.

Now, for the credit scores: When a company (Chase, Amex etc.) is thinking of extending credit to you, they want to know how risky you are, hence a credit score. Instead of spending hours trying to analyze your report themselves, they will look at a number, which is based solely on the credit report, and that score number will tell them your risk. The higher the score, the lower the risk.

There is a company called FICO, which takes each of the three credit reports and using a complex method, formulates a number between 300 and 850. The higher the score, the less risky you seem to be. So, being that everyone has three credit reports, and the scores are based on the reports, therefore everyone has three FICO scores, one for each report.

Usually, when a company checks your credit, they will check one of the three reports along with the fico score. Sometimes however, like when applying for a mortgage, they may look at all three reports and scores, and consider the middle score as your score.

Lots of other companies, including the credit reporting agencies themselves, have their own methods of calculating these scores, but most credit companies will check the FICO score to see your credit worthiness, and not the other scores. so, if you really want to know what the credit card companies think of you, you have to check your FICO scores.

Bottom line:
1) Check each of your three credit reports to make sure its all correct, and to make sure that nobody is stealing your identity. Perhaps sign up for a credit monitoring service.
2) If you want to know your score, either because you are opening cards, or buying a house etc. then check your three FICO scores.
3) If all you want is a basic idea as to where you stand, or you want to know if your score is dropping, then other non-fico scores can be good for you as well.

Related articles:
Where To Check Your Credit Reports And Scores
FreeCreditReport.com is NOT the place to get your free credit reports!

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