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Ever wonder why there are so many different types of credit scores?

BECAUSE IT’S BIG BUSINESS…

Credit score formulas are highly complex and are closely guarded industry secrets, but they all do the same: predict the likelihood of you paying back a debtor on or ahead of time.

FICO Score - There are 49 different FICO scores, each with different calculations. FICO scores range between 350 and 850, with 850 being a perfect credit score. All of the versions of the FICO score use your credit files from each of the major credit reporting agencies.

The score make up of all versions are:

1. Payment history (35% of score),

2. Credit utilization (30% of score),

3. Age of accounts (15% of score),

4. New credit (10% of score),

5. Types of credit being used (10% of score).

What version of the FICO score used depends on the type of credit you are applying for. If you’re applying for a mortgage loan, you will get a FICO score calculated specifically to predict how likely you are to repay a mortgage.

MyFico.com is the only place to get your FICO scores, they sell two different versions of FICO scores to customers, the FICO 8 score and the FICO mortgage score. The other scoring models are sold to financial institutions.

Vantage Score - The Vantage score was created to compete with the FICO model.Vantage scores are sold by VantageScore Solutions, a company which operates as a subsidiary of TransUnion. FICO services over 90% of all lenders, but Vantage is starting to come on strong. Vantage Score LLC now claims that 2000 lenders are using its model and 6 of 10 of the major banks in some way. Originally, the Vantage Score scale was 501 – 990, but in an effort to compete with FICO, Vantage Score 3.0 has been revised to range from 300 to 850.

The score make up slightly different from FICO:

• 32% payment history

• 23% credit utilization (amount of credit used/divided by credit limit)

• 5% balances

• 13% depth of credit

• 10% recent credit

• 7% available credit

• Unlike the FICO score, paid collections do not count against you (Vantage 3.0 scoring model).

• With the FICO scoring model, data must be at least a year old to count in the scoring calculation. The Vantage Score can score consumers with only 6 months of data.

If you get your credit score directly from any place other than myfico.com , you will most likely receive a Vantage Score.

Insurance Score - Your insurance score is made up of information from your credit files and is a predictor of the likelihood a consumer will file an insurance claim. Statistics prove that people with high credit scores are less likely to file claims. And, as you can imagine, people with poor scores are more likely to file a claim for repairs, losses, theft, etc.

Your insurance score is a big factor when calculating premiums for health and life insurance. Much of what makes a good credit score also weights insurance scores. Typically, payments on time, low credit utilization rates and a long history all factor into a favorable insurance score.

The use of credit to quote premiums is not legal in all states: Massachusetts, Hawaii and California ban the use of insurance scores. In order to qualify for the lowest insurance rates, you need to have an excellent insurance score.

When choosing a third party credit monitoring site such as Credit Karma, Free Credit Report .com, etc., know the score they use, it is probably NOT a true, lender FICO report.