3 Must-Know Secrets About Your Credit Score

Credit scores can be complicated, and many people don’t know too much about them and how they work. But because they have such a big impact on your ability to get favorable mortgage terms (or a mortgage at all), it pays to know all you can about them. Here are a few credit score secrets you probably don’t know.

There Are Many Types of Credit Scores

The FICO score is the credit score you’re probably most familiar with, and for good reason. It’s usually a FICO score you’ll get if your bank or credit card offers you a free score each month. And it’s the most widely used credit scoring model—in fact, it’s used in more than 90% of all lending decisions.

You have 28 FICO scores and different types of lenders use different scores. There are also different scoring models for each lender type (hence why you have 28 of them!) For instance, if you’re getting a car loan, the auto lender is probably using a version of the FICO Auto Score. Credit card issuers may use a version of the FICO Bankcard Score. Mortgage lenders also have several different FICO score versions to choose from.

Different scores and scoring versions are used by each of the three major credit bureaus, as well—Transunion, Experian, and Equifax.

There’s no way to know which version of your score a lender is going to be looking at. But since FICO scores are the most common, you can get a good picture of your credit by going to myFICO.com and paying a fee to see all of your scores. This will give you a big picture view of your credit and will show you your FICO score variations.

Credit Scores Change Daily

Credit scores can change every single day, so remember that what you see on a given day isn’t very important. Sudden changes up and down are totally normal, even if you’re checking the exact same score.

This happens because creditors and lenders are continuously making updates to your credit throughout the month. When you check your score, it’s recalculated based on the information available at the time you check it.

(An important side note: Your credit score does not respond instantly to the actions you take. If you pay off a credit card today, there will be a delay between the time you pay it off and the time the card issuer reports it to the credit bureaus.)

So don’t rely on these small changes to indicate whether or not your credit is improving. Judge your score’s movement over several months to get an idea of where you’re headed.

Credit Karma monitors Equifax and Transunion,  and Credit Sesame monitors Experian. They’re both free and help you track changes to your scores and tell you how the information in your report has changed and why.

(Important side note #2: because of the many different FICO scores and scoring models available, the score you see on these sites is likely NOT the score that a lender would see when qualifying you for a mortgage. This score is likely your FICO Score 8 number and a lender will use the FICO Score 2, 4, and 5 for Mortgage, specifically.)

Your Credit Score Compares You to Others

Your credit score is really a ranking of you compared to other consumers. Here’s how credit scoring works on a big-picture level.

Step #1: Analyze You

First, credit scoring companies analyze your individual data—payment history, amount you owe, length of your credit history, and more. This predicts your likelihood of becoming delinquent on a credit obligation and produces what’s called an odds ratio. An odds ratio is the sum of your good credit behavior divided by the sum of your bad credit behavior.

Step #2: Group You with Similar Consumers

Next, all consumers are all put into groups (called scorecards) who have similar events in their own credit histories. If you miss a car payment, you’ll enter a scorecard with others who also missed a car payment. Those with the most harmful credit behavior get a scorecard with the lowest range of credit scores assigned to it, while those with the best credit behavior enter a scorecard with higher scores. And of course there are scorecards for those who are in the middle.

Step #3: Compare You to Others

Then, the odds ratio from the first step is mapped onto a credit score for each person, based on their scorecard positions. Basically, this just shows lenders what your score is and also how risky it is to lend to you based on the behavior of others like you.

The important thing to remember about a credit score is that it is a comparison against others. You can change your own credit behavior and influence your score, but other people also affect your score. That’s because if their credit behavior changes, you suddenly compare differently to them.

Secrets About Your Credit Score Conclusion

I hope this helps you understand a little more about how credit scoring works! It can definitely be complex. But the more you know, the easier it is to influence your own score.