When you need to borrow money, lenders want to make sure that you’ll be able to pay them back, so they use your credit score as an indicator of your ability to do so. But what’s the most important credit score? Unfortunately, it depends on your circumstances and the type of loan you’re applying for. Different types of loans will have different requirements, so this guide will help you understand the significance of your credit score, no matter what type of loan you’re seeking.
What is Credit Score?
A credit score is a three-digit number that shows the likelihood of approval for different products based on specific criteria.
Credit scores, which range from 300 to 850, can be difficult to calculate with so many versions– from basic models to industry-specific scores– making it difficult to know which one you’re being evaluated under during an application process.
You might look at your score from a credit card company and find that it’s different than on another website or in person when looking at someone else’s; rendering them useless in determining exactly where you fit within the minimum qualification requirements.
When lenders pull your credit score, they usually request information directly through a private agency instead of using services found online (e.g., Experian, Equifax or Transunion).
What factors affect your credit score
Knowing how to keep your credit health up will always benefit you. A good credit score will show that you’re reliable and trustworthy, plus it can save money down the road when going for a loan or credit card. There are many things that go into how how low or raise one’s credit scores may be such as:
- Payment History – paying bills on time has shown to make all the difference when it comes to getting approved or denied for certain items such as applying for a mortgage or if applying for other forms of loans which may involve taking out extra personal loans.
- Credit Usage – there is no perfect number of credits one should carry but carrying too much debt could raise red flags especially if someone had significant medical emergencies or they declared bankruptcy recently.
- Length of Credit History – having an established and stable credit history such as being responsible in making payments month after month without fail could give someone a lower interest rate than someone who doesn’t have a lot of credits or isn’t making timely payments.
Why Your Credit Score Can Be Different
When trying to figure out your personal starting credit score, it can sometimes feel overwhelming with all the misinformation and negative press surrounding the subject. But before you worry about what people are saying – first make sure you know what information is being put on your personal report!
There are three main categories: public records (like liens), repayment history (things like late payments), and financial character traits (whether or not they take responsibility). These factors will determine if someone views you as trustworthy or unreliable.
The factors contributing to why your credit score differs are.
- Credit scoring model used: There are many credit scoring models available.
- Score version: There are many versions of credit scores that lenders use when deciding whether you’re worthy of borrowing money from them.
- Credit bureau: Many bureaus exist but most importantly these are Equifax, Experian, and TransUnion (or TU).
Generally speaking, your score will differ depending on which reports you’ve given those bureaus access to see. And if something on one report changes when it gets updated the other two won’t change unless they have duplicate data too! But what causes some major discrepancies is errors on your your credit report update – so make sure it’s accurate because otherwise it’ll create a variation in your eventual results!
Which Credit Score Matters Most
How do you measure who deserves a high credit score? Lenders tend to use FICO Scores because they approve 90% of the loans.
But wait, let me give some examples before we dive into this too deep. Say you just want to look at your report occasionally because money isn’t something you want to worry about every day – but it’s important enough that FICO Score 8 is a solid option for getting all of your information quickly.
You don’t need an industry-specific report if you’re just going around town; instead think about making one huge purchase like buying a house or vehicle (frequently). Lenders have detailed charts on what types of scoring systems are used for those transactions so take a look before jumping in head first!
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