Checking your credit score is the way to know your overall financial health. This is why it is impotant to understand what it is, to be able to stay healthy. Read on to find out the answer to a very important question: what does your credit score mean?
Your credit score informs lenders and other interested parties of your credit risk. The algorithms, based on a number of factors, are designed to predict your future behavior and indicate whether you are likely to have trouble (or not) paying back a loan.
The Fair Isaac Corporation, (FICO) is the most widely used producer of consumer credit scores that businesses use when deciding to issue credit.
If you have seen that the score provided by sites like Credit Karma, for example, is different from scores like myFICO, it is because most free credit score sites use VantageScores, while others simply use an adjusted version of your FICO score.
VantageScore is a credit card rating that was developed by the three major credit bureaus (Experian, TransUnion and Equifax) and is used, as an alternative to FICO scores, by lenders, landlords and financial institutions to evaluate creditworthiness. The big advantage it offers is that it is free to the credit monitoring services so there’s a smaller burden on you.
The main difference is that VantageScore prefers not to use percentages to describe how much weight it gives various credit factors, as FICO does, but instead describes them in terms of influence.
Still, the factors that matter most in FICO scores are also the most heavily weighted for VantageScores and for both, the single most important thing consumers can do to help their scores is to pay on time.