A Straight Talk on Debt

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How Many Credit Scores Are There?

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There's a lot of interest in credit scores, and the members of this community are no exception to that. One could make a case that people who are viewing the pages of these blogs and forums are more interested in their credit score than the average person.

After all, we're here because either by some catastrophic event or by our own financial missteps we've enrolled in a debt relief program

We're looking forward to the day when our score no longer reflects our troubled past.

I used to say I didn't care at all about my credit score. I've posted countless times to threads in the forums stating that I just pay my bills on time and let my score take care of itself. Then, earlier this year, my wife and I walked through the doors of our bank and started the process of trying to refinance our mortgage

All of a sudden I cared a whole lot about my credit score.

We were penalized on the interest rate offered because my credit score was just below the threshold needed to qualify for the best interest rates. With an internet connection and a few key strokes you can easily find information about the definition of  a good credit score. 

Unfortunately,  there's a lot of confusion when it comes to them as well.

Anytime someone starts talking about a credit score, you should instinctually ask what kind of credit score they're referring to. People throw around credit score numbers like there's one master scale, and that's simply untrue. 

Here's a list of some of the most well known:

VantageScore: This is one of the newest players to the table, and is calculated using a model developed jointly by all three of the major reporting bureaus. 

TransUnion: TransUnion, one of the three major credit reporting bureaus, has their own model to calculate a credit score. 

FICO: This is the most common brand of credit score, and the one that people generally think of when the term is used. It's calculated based upon the model created by the Fair Isaac Corporation. All three of the major credit reporting bureaus maintain some version of your FICO score.

Notice that I used the term "brand" and "version" above when referring to your FICO score. 

The reason for that is because you don't have a single FICO score. You have one that's used for mortgages, one for auto financing, one for installment loans, and yet another for determining your worthiness for credit cards. Additionally, the scoring algorithm is tweaked slightly for each of the three bureaus which is why the scores seldom (never) match. Throw all those variables together, and you've got more credit scores than you can shake your checkbook at.

If you're confused, don't worry, I do have some good news for you.

While there are seemingly countless credit scores, there is a high correlation between them all. This means that if your credit score is good in one model, chances are it will be good in the rest as well. So if you find a place where you can get a credit score for free, you can get a decent feel for where your credit score will be for all of the models. 

The point I'm trying to make here is this: People get confused when they get their credit score from somewhere off the internet, only to find out the number a lender used to determine whether they qualify for a mortgage or a car loan is completely different.  When that happens, your potential lender is likely using a different variety of score than you paid for.

There's a lot of information to absorb when it comes to credit scores. Whether you choose to avoid credit all together from this point forward, or you choose to take another run at using credit responsibly is your choice. But knowledge is power, and being a little more informed about how credit scores work is another tool in the toolbox to help you successfully manage your finances.

Related Links:

Can You Refinance Your Home When Enrolled in a Debt Consolidation Program?

Part 2 -Refinancing Our Home While Enrolled in a Debt Consolidation Program

How Credit Scores Began

 

Travis Pizel, debt management plan customer with leading provider of debt relief, CareOne Services, Inc. Travis Pizel

Travis is a contributing writer for the A Straight Talk on Debt blog. He is also a very active member of the CareOne community forums. Travis is currently enrolled in a CareOne Debt Management Plan (DMP). Travis candidly shares his personal journey to pay off his debt and the tips he's learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family in Minnesota. You can also read more from Travis on the Enemy of Debt blog, where he is a featured blogger. Compensated Blogger for CareOne Debt Relief Services.

To connect with Travis on Google+ click the

You can follow Travis on Twitter @DebtChronicles

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  • Credit always plays an important role in your life – affecting the purchases you make and much more. The more knowledge you have about credit as well as credit scores, the easier it is too strong your financial well-being.

  • Paying credit card bills on time is a big part of it. But often, knowing things such as how credit utilization affects your scores or how to fix an error on your credit report can make enough difference to save you a lot of money in the long run.

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