In today’s financial landscape, credit scores play a crucial role in determining a person’s creditworthiness. Whether you’re applying for a loan, renting an apartment, or even seeking employment, your credit score can have a significant impact on the outcome.
While most people are aware of the importance of credit scores, many are not familiar with the various types of credit scores and how they differ from one another.
In this article, we will explore the different types of credit scores and provide you with a comprehensive understanding of each.
Credit Score Models Used By Different Credit Bureaus
Understanding the different types of credit scores is crucial because different lenders may use different models when evaluating your creditworthiness.
Let’s look into the types of credit scores one by one and learn about the basic difference between them:
- The FICO score is perhaps the most well-known and widely used credit scoring model in the United States.
- Developed by the Fair Isaac Corporation, the FICO score is based on a range of 300 to 850, with a higher score indicating better creditworthiness.
- This score is calculated using several factors, including payment history, credit utilization, length of credit history, types of credit used, and new credit applications.
- VantageScore is another popular credit scoring model that was jointly developed by the three major credit bureaus: Equifax, Experian, and TransUnion.
- Like the FICO score, the VantageScore ranges from 300 to 850, and a higher score indicates better creditworthiness.
- VantageScore also takes into account similar factors such as payment history, credit utilization, credit mix, and inquiries.
- However, it may weigh these factors differently than the FICO score.
Other Credit Scoring Models Used Across The World
Experian PLUS Score:
- The Experian PLUS Score is a credit scoring model offered by Experian, one of the leading credit reporting agencies.
- This score ranges from 330 to 830, with a higher score indicating lower credit risk.
- While it shares similarities with the FICO and VantageScore models, the Experian PLUS Score places less emphasis on factors like credit utilization and may be more forgiving of occasional late payments.
TransUnion CreditVision Score:
- TransUnion CreditVision Score is a credit scoring model developed by TransUnion.
- This model utilizes trended credit data, which provides a historical view of a consumer’s credit behaviour over time.
- It considers factors such as payment patterns, credit utilization, and public records.
- The score range varies based on the specific version of the CreditVision model being used.
Equifax Credit Score:
- Equifax, another major credit reporting agency, provides its own credit scoring model known as the Equifax Credit Score.
- This score ranges from 280 to 850, and it takes into account factors such as payment history, credit utilization, length of credit history, and public records.
- The Equifax Credit Score is commonly used by lenders to assess creditworthiness.
- Apart from the general credit scores mentioned above, there are also industry-specific credit scores that cater to particular sectors.
- For example, the FICO Auto Score focuses on a consumer’s creditworthiness in relation to auto loans, while the FICO Bankcard Score is designed for credit card issuers.
- These industry-specific scores often place more weight on factors relevant to the specific sector they serve.
It’s important to note that the credit scores mentioned above are just a few examples of the many scoring models available in the market.
Each lender or financial institution may have its own proprietary scoring model or may use a combination of different scores to assess creditworthiness.
Types of Credit Bureaus Providing Credit Scores:
In India, there are four primary credit bureaus that collect and maintain credit information of individuals and businesses.
These credit bureaus play a crucial role in assessing creditworthiness and providing credit reports to lenders.
The four credit bureaus in India are:
Credit Information Bureau (India) Limited (CIBIL):
CIBIL is the oldest and most widely known credit bureau in India. It collects and maintains credit information of individuals and businesses, and provides credit reports and scores to lenders.
CRIF High Mark:
CRIF High Mark is a credit bureau in India that specializes in credit risk management solutions. It collects and processes credit information to generate credit reports and scores for lenders and individuals.
Equifax is a global credit bureau that operates in India as well. It collects and analyzes credit data to generate credit reports and scores for lenders and individuals.
Experian is another prominent credit bureau that operates in India. It gathers credit data from various sources and provides credit reports, scores, and analytical services to lenders and individuals.
Types of Credit Score:
- VantageScore is a credit scoring model developed jointly by the three major credit bureaus (Equifax, Experian, and TransUnion).
- It was created as an alternative to the FICO Score and aims to provide a more consistent credit scoring system across lenders.
- VantageScore uses a slightly different scoring range than FICO Score, which is from 300 to 850.
- The VantageScore model takes into account various factors to calculate a person’s credit score, including payment history, credit utilization, credit age, credit mix, and recent credit behavior.
- It may also incorporate alternative data sources, such as rent and utility payments, to assess creditworthiness.
- VantageScore versions, such as VantageScore 3.0 and VantageScore 4.0, have been introduced over the years, each with its own scoring methodology and improvements.
- The FICO Score is developed by the Fair Isaac Corporation, hence the name FICO.
- It is one of the most widely used credit scoring models in the United States. FICO Scores are based on credit data from the three major credit bureaus and provide lenders with a standardized measure of an individual’s credit risk.
- FICO Scores range from 300 to 850, with higher scores indicating lower credit risk.
- The calculation of a FICO Score considers several factors, including payment history, amounts owed, length of credit history, new credit, and credit mix.
- Each factor is weighted differently, with payment history carrying the most significant weight.
- FICO has introduced different versions of its scoring model over time, such as FICO Score 8 and FICO Score 9, each with refinements and enhancements to the scoring algorithm.
- Additionally, there are industry-specific FICO Scores tailored for auto loans, mortgages, and credit cards, which focus on credit behavior related to those specific types of loans.
Both VantageScore and FICO Score are widely used by lenders and financial institutions to assess an individual’s creditworthiness. It’s worth noting that the specific factors and weightings used in these models may vary slightly, but the underlying goal is to predict the likelihood of a borrower repaying their debts on time.
Different Ranges of Credit Scores
Credit scores typically fall within a range that helps lenders and financial institutions assess an individual’s creditworthiness.
The most commonly used credit scoring model is the FICO Score, which ranges from 300 to 850. Here are the general ranges for credit scores:
1. Poor Credit (300-579): Scores in this range are considered very low and indicate a high risk of defaulting on credit obligations.
a. Individuals with poor credit may have difficulty obtaining loans or credit cards, and if approved, they may face higher interest rates and stricter terms.
2. Fair Credit (580-669): Scores in this range indicate a higher risk compared to average scores.
a. While individuals in this range may still qualify for some loans and credit cards, they may face higher interest rates and less favorable terms.
3. Good Credit (670-739): Scores in this range are considered to be good and reflect a lower risk for lenders.
a. Individuals with good credit are more likely to be approved for loans and credit cards with competitive interest rates and favorable terms.
4. Very Good Credit (740-799): Scores in this range are considered very good and indicate a lower risk for lenders.
a. Individuals with very good credit are likely to have access to a wide range of credit options and may qualify for lower interest rates and better terms.
5. Excellent Credit (800-850): Scores in this range are considered excellent and indicate a very low risk for lenders.
a. Individuals with excellent credit are highly likely to be approved for loans and credit cards with the most favorable interest rates and terms.
It’s important to note that these ranges may vary slightly depending on the credit scoring model used by lenders.
Additionally, other credit scoring models, such as VantageScore, may have slightly different score ranges and criteria for evaluating creditworthiness.
With Buddy Score, you can check your credit score for free and plan your finances effectively.
Credit scores play a crucial role in the lending industry, helping lenders evaluate the creditworthiness of individuals and determine the risk associated with granting them credit.
And remember to comment below and tell us, were you also confused like us about the diverse world of credit scores? Or anything that we may have missed.
Q. How do credit bureaus work in India?
A. Credit bureaus in India, such as Credit Information Bureau (India) Limited (CIBIL), Experian, Equifax, and CRIF High Mark, collect and maintain credit-related information on individuals and businesses.
Q. What is a good credit score?
A. A good credit score typically ranges between 700 and 850 in India. A higher credit score indicates a lower credit risk and demonstrates responsible credit management. It increases the likelihood of obtaining favorable loan terms, lower interest rates, and higher credit limits from lenders.
Q. How to get a 900 credit score?
A. Achieving a perfect 900 credit score is extremely rare and challenging. To work towards a high credit score, regularly monitor and review credit reports for errors and disputing inaccuracies can also contribute to an improved credit score over time.
Q. Does the CIBIL score increase every month?
A. No, its does not automatically increase every month. It is a dynamic measure that changes based on your credit behavior and financial activities.