What's Really Behind Your Credit Score?
A Deeper Look at Personal and Business Credit
If you've ever looked at your credit score and thought, "My credit score is what? How can that be…?" you're not alone. This is one of the most common questions we hear, and the answer is not as simple as you might think. In reality, your score can vary depending on the information the credit bureau has on file and the scoring model used. Understanding how credit information is collected, reported, and evaluated can help eliminate the confusion.
What is a Credit Score?
The definition of a credit score is a numerical representation of creditworthiness based on the information contained in your credit report. Lenders often use this score to help identify risk when making lending decisions.
There are three major credit reporting agencies:
- Equifax
- Experian
- TransUnion
Why Is My Credit Score Different From Site to Site?
Many people assume they have one universal credit score, but that's not the case. There are several reasons why your score may vary depending on where you check it.
- Not All Lenders Report to All Three Credit Agencies - Some lenders report account activity to all three credit reporting agencies, while others may report to only one or two. Because each agency may have slightly different information, your score can vary from one site to another.
- Different Scoring Models Are Being Used - While FICO® and VantageScore® evaluate many of the same credit factors, they use different formulas and weighting systems. As a result, the same credit profile can generate different scores.
- Industry-Specific Scoring Models - Some lenders use specialized scoring models designed for certain industries, such as automotive or mortgage lending. These industry-specific models may produce scores that differ from the consumer scores you see online.
- Boost Scoring Models – These are often offered by each of the major credit reporting agencies, for a fee, to increase your current credit score. The only problems with these scores are that they are valid only for the specific agency you paid for, and most lenders do not widely accept them.
Different Scoring Models Produce Different Results
Let's take a deeper look at the two widely used scoring models.
- FICO® Score
- VantageScore®
While both models evaluate many of the same credit characteristics, they place different levels of importance on each factor. The percentages shown below represent the weight, or influence, each factor has within that specific scoring model. The higher the percentage, the greater impact that factor has on your overall score.
- The FICO® Score Model was developed by Fair Isaac Corporation and still remains the most widely used scoring model among lenders today. FICO scores are calculated using five primary factors:
- Payment History (35%)
- Credit Utilization (30%)
- Length of Credit History (15%)
- Credit Mix (10%)
- New Credit Inquiries (10%)
- The VantageScore® Model was developed jointly by Equifax, Experian, and TransUnion as an alternative to the FICO® Score. VantageScore calculates scores using six primary factors:
- Payment History (40%)
- Depth of Credit (21%)
- Credit Utilization (20%)
- Balances (11%)
- Recent Credit Activity (5%)
- Available Credit (3%)
Because of these differences, it is possible to receive different credit scores even when the information contained in your credit reports is essentially the same. As you can see in the chart below, a score that may be considered "Good" under one model may be categorized as "Fair" in another.
| Rating | VantageScore 3.0 | Fico Score 8 & 9 |
|---|---|---|
| Excellent | 748-850 | 800-850 |
| Very Good | 716-747 | 740-799 |
| Good | 661-715 | 798-739 |
| Fair | 600-660 | 580-669 |
| Poor | 300-599 | 300-579 |
Ways to Help Improve Your Credit Score
Building and maintaining good credit takes time, but there are several steps you can take to strengthen your credit profile. Remember, small improvements over time can lead to stronger credit profiles and better financing opportunities in the future.
- Pay Your Bills on Time - Payment history is one of the most important factors used in calculating credit scores.
- Keep Credit Card Balances Low - Using a high percentage of your available credit can negatively impact your score. Lower balances generally help improve credit utilization.
- Monitor Your Credit Reports Regularly - Reviewing your credit reports can help you identify errors, monitor activity, and address issues before they become larger problems.
- Avoid Unnecessary Hard Credit Inquiries - Too many hard inquiries in a short period can lower your credit score. Before submitting an application, ask if a soft credit inquiry is available. Soft inquiries allow a company to review certain credit information without affecting your credit report.
- Maintain Older Credit Accounts - The length of your credit history matters. Keeping older accounts open when appropriate may help strengthen your profile.
- Use Credit Responsibly and Consistently - Responsible credit use over time helps establish a positive credit history and demonstrates financial stability.
Understanding Business Credit
For business owners, personal credit is often only one part of the approval process. Many businesses also establish and maintain their own commercial credit profile.
The three major business credit reporting agencies are:
- Dun & Bradstreet (D&B)
- Equifax Business
- Experian Business
Business credit reports also can contain a wide range of information that helps lenders evaluate a company's financial stability, payment history, and overall creditworthiness. These reports often include:
- Business background information: Owners, parent companies, subsidiaries, employer identification number, & industry
- Business financial information: (If available) Bank account balances, returned checks, assets, real estate owned, inventory, & sales
- Banking, trade, and collection history: Accounts opened in the business's name and the payment history on those accounts.
- Credit inquiries: Hard Inquiries indicate that you need or want credit to operate. This also requires your permission to proceed. But a Soft inquiry happens when you are trying to get pre-approved for financing and has no impact on your score.
- Public Filings: Uniform Commercial Code filings (UCC), liens, judgments, and bankruptcies
Together, all this information creates a financial snapshot of a business and offers a glimpse into how a specific company manages its financial obligations. That is why a strong business credit profile can help a company qualify for financing and potentially access more favorable lending options.
The Bigger Picture: Credit Scores Are Only Part of the Story
At the end of the day, your credit score is just one piece of a much larger financial picture. While lenders use credit scores to help assess risk, they also consider the information that makes up your overall credit profile.
Taking the time to understand how credit reports are created and how scores are calculated can help you make smarter financial decisions in the future. Instead of worrying about one number, focus on building healthy financial habits that can positively impact your credit over the long term.
A credit score may open the door, but the story behind the score often helps determine what opportunities are available once that door is opened.
Editor's Note: The information contained in this article is intended for educational purposes only and should not be considered financial, legal, tax, or credit advice. Credit scoring models, reporting practices, and lending requirements may change over time. Readers should consult qualified financial, tax, or legal professionals regarding their individual circumstances. Information referenced in this article was obtained from the following resources: Experian, TransUnion, Equifax, AnnualCreditReport.com, Credit Karma, VantageScore, Consumer Financial Protection Bureau (CFPB) Consumer Tools, Credit Sesame, Chase, NerdWallet, US Small Business Administration, Nav, & Dun & Bradstreet (D&B)
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