A Complete Guide To Understanding Your 3 Credit Scores

Building a healthy financial future starts with a good credit score. If you want to get loans with low-interest rates and save a couple of thousand dollars in a few years, then your credit history should be optimal. On the other hand, a bad credit score will leave you with limited options to get a loan, and even then, you’ll have to deal with extremely high-interest rates, until your credit score improves. So, if you’re dreaming of getting a new car or buying a new home, you need to know all about credit scores so you can improve and keep yours at a good rate. The following guide will help you do this.

What is a Credit Score?

Your credit score is a three-digit number that practically sums up your credit history and is usually the main indicator of your ability to repay loans on time. You see, lenders will look up your credit score before approving your loan, adding a high-interest rate when your credit score is low and vice versa. Credit scores are calculated by the 3, well-known credit bureaus: Equifax, Experian, and TransUnion.

Why Are There 3 Credit Scores?

If you ask any layman, they’ll tell you that they have only one credit score, which is incorrect. There are 3 main bureaus, each of which has its own methods of collecting information and creating your credit report. There are also different methods of calculation, and different scoring models (the most popular model is FICO scores). That’s why you’ll have 3 varying credit scores from Equifax, Experian, and TransUnion.

Keeping track of all your scores may seem like a daunting task, so you can simply track the one credit score your chosen lender uses to assess whether or not their clients can pay back their debts. However, if you prefer to know all 3 of your credit scores, checking your credit rating online is the best and easiest way you can do this. This can be useful for people who like to check for inconsistencies and understand why there are disparities in their credit reports. Besides, having full knowledge of your financial situation is always an advantage that can help you predict the future of your scores.

How Are Your Credit Scores Calculated?

Credit card companies, banks, and similar financial institutions don’t just approve the credit you need, but they also provide credit bureaus with information related to your credit history. This information is then compiled and sent to the credit bureaus who use their calculative measures and criteria to create your credit report.

The data that is sent to credit bureaus includes your previous loans, credit card activity, your account balance, the amount that you’ve paid, and your due payments. Both FICO and VantageScore scoring models utilize 5 factors to calculate your score: your payment history, age of your accounts, credit utilization, credit in use, and new credit.

How Can You Tell If You Have a Good Credit Score?

FICO scores range between 300 and 850, and as we’ve mentioned before, higher credit scores are more favorable and will reduce the amount of interest you have to pay. They tell lenders that you’re going to pay on time, so a high credit score is always advantageous for both parties. However, credit scores aren’t used to tell good customers from bad customers, as they’re not the only factor that lenders use to judge their customers.

Additionally, there is no fixed range of good credit scores because lenders use their own criteria, which includes a credit score threshold. In short, there isn’t really a definitive answer to whether or not your credit score is good enough.

Why Are Your Credit Scores Important?

Credit scores are used in all fields of life; your business partner may look up your credit score before working with you or you might be able to finance your car if your auto lender sees that you have a good credit score. In any case, your 3 scores can provide you with more opportunities, which means that you can use the higher credit scores to get a large loan, for example, with a small interest rate.

Starting up your financial journey with good credit scores and full knowledge of how to use them to your advantage should guarantee a prosperous future. So, make sure you check your scores regularly through online credit score checkers and have a clear understanding of your credit situation. Remember to consult financial experts on how to maintain your good credit score so you can have better control over your finances.

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