Just complicated: how does a FICO rating differ from a credit rating
FICO rating and credit rating may be the same, but FICO also creates different models for calculating the rating (scoring), while other companies create credit ratings, according to the website of the national credit bureau. Experian.
Credit rating is the general name for a computer model that analyzes consumer credit reports to determine a rating. FICO offers a specific type of credit rating - the FICO Score, which many lenders use when determining the creditworthiness of a loan applicant. But some lenders choose to create their own scoring models or use the credit ratings of competitors.
Does the FICO rating match the credit rating?
Like all credit risk assessments, the FICO rating predicts the likelihood that you might be 90 days late in paying your bill over the next 24 months. FICO does this using sophisticated algorithms based on information on your credit report from each of the national credit bureaus: Experian, TransUnion, and Equifax.
The FICO periodically releases new versions of its ratings and creates different versions of the models to work with the databases of each bureau, so there are many types of FICO ratings. Other companies, including VantageScore, also generate credit risk scores that similarly analyze consumer credit reports to calculate scores.
Credit scoring models rank consumer credit behavior, so it is believed that a person with a higher score is less likely to miss a payment than a person with a lower score, and therefore a higher score can help provide better conditions when applying for a loan.
On the subject: 7 unexpected mistakes that can lower your credit rating
FICO and VantageScore credit scores range from 300 to 850 and group consumers according to their ranges. For example, a FICO rating of 800 to 850 is considered “exceptional”. However, even if they use the same range and information from the same credit report, each scoring model has a unique approach that can lead to a different score.
FICO also creates other types of ratings that are based in part or in whole on credit reports. For example, it offers credit-based insurance ratings and bankruptcy scores that attempt to predict the likelihood that you will file an insurance claim or file for bankruptcy, respectively.
Why do you have different FICO results?
As mentioned above, FICO creates different models for handling the credit reports of each credit bureau. In addition, FICO periodically releases new models to accommodate changing consumer behavior, new regulatory requirements and technological advances. Since not all lenders and companies use the same scoring models or versions, you may have multiple (or even hundreds) credit ratings.
For example, the FICO 10 T rating is a variation on the FICO Score 10, the latest version of the basic company scoring model. This is the first estimate that, from various sources, looks at how you have handled bill payments in the past 24 months. But lenders can use older models such as FICO Score 8 or FICO Score 9 or even older versions when deciding whether to approve a credit card or loan application. They can also choose one of the VantageScore credit rating models, for example, its most recent versions 3.0 and 4.0.
FICO baselines are not intended for a specific type of lender or loan. But FICO also creates industry ratings for auto lenders and credit card issuers. These models are based on a baseline to give lenders in the industry a more personalized rating that ranges from 250 to 900.
What is your real credit rating?
Companies can choose which score to use when reviewing and managing customer accounts, which is one reason for the competition in the credit scoring world. Therefore, there is no single “real” credit rating.
For example, when you take out a car loan, you might try to get offers from multiple lenders. One lender can use FICO Score 8, another can use FICO Auto Score 2, and the third can use VantageScore 4.0. Your ratings may differ, but each one is very real in the sense that the lender uses it to determine if you are eligible for a loan and the rates and conditions that are offered to you.
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Typically, you don't know which of your three credit reports or which credit rating the lender will use. However, since all credit ratings are based on the same underlying data, creating a positive rating can help you get good data regardless of the model. Conversely, negative points like late payments or bankruptcy can hurt all of your credit ratings.
How to check FICO rating for free?
Although a new version of the FICO Score is already available, FICO Score 8 remains one of the most widely used versions. This is partly due to the fact that lenders need to invest time and money in the transition to the new scoring model. You can free check your rating FICO Score 8 based on Experian's online credit report. You will also find out which factors help or worsen your results the most, and you can track your progress over time.
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