We live in a world in which just about anything can be tracked. From the number of steps we take in a day to how much we spend on coffee in a month, there seems to be a tool to let us know how we’re doing in every aspect of our lives. Credit is no exception. But who are the companies keeping track of our credit, and what’s their purpose? Find out the answer to what credit scoring companies are here.
What Are Credit Scoring Companies?
Credit scoring companies create a score for consumers to rate how well they use credit. The information used to create these scores can be found on your credit reports and includes factors such as your payment history on current accounts, the amount of debt you have, and more.
But just because credit scoring companies use credit report information doesn’t mean that these two are the same thing. Credit scores are different from credit reports. And you won’t see your credit scores on your free credit reports from AnnualCreditReport.com.
The First Credit Scoring Company
FICO® was the first credit scoring company, and it’s currently the most popular. The company was founded in 1956 and has sold 100 billion credit scores to date.
It all started when the founders Bill Fair and Earl Isaac came together to improve business decisions through data, and established the Fair Isaac Corporation, which would create the FICO® score. Before then, the only way to vet a consumer for lending purposes was to rely on their references and reputation – not exactly an objective or scalable way to decide which consumers are safe to lend to. FICO® would start the process of developing a score that could be used objectively to determine consumer creditworthiness far and wide.
Although FICO® has had a solid hold on the market for decades, another company has risen up to take a seat at the credit scoring table: VantageScore®. VantageScore® was created as a joint effort by the three big credit reporting agencies (Equifax, Experian, and TransUnion), but it’s an independently run company.
According to VantageScore®, the company uses “innovative patented, and patent-pending scoring methodology to provide lenders and consumers with more consistent credit scores across all three major credit reporting companies and the ability to score more people.”
Scoring more people is an important goal of the industry as a whole, as the “credit invisible” (people who don’t have credit scores due to a lack of credit history) are often held back from the opportunities that credit can provide.
VantageScore® has shared one important statistic to show its burgeoning popularity: From the summer of 2015 through the summer of 2016, more than 8 billion of its scores were used “by over 2,400 lenders and other industry participants — including 20 of the top 25 financial institutions.”
The credit reporting agencies have gotten into the credit scoring game as well, with Equifax, Experian and TransUnion having developed their own credit scores over the years.
The Most Important Thing to Know About Credit Scores
Since multiple companies create credit scores, it should come as no surprise that consumers have more than one credit score. Because of that, you might notice that your credit scores are different from each other. This is completely normal since the formulas themselves differ from each other. Even an older version of one of your FICO® scores, for example, might not be the same as the latest version. If you focus on the range your credit score falls into, it’s a lot easier to have an understanding of where you stand overall.
Below are the ranges your FICO® credit scores are broken into:
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And here are the ranges your VantageScore® credit scores are broken into:
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Where You Can Go to See Your Credit Score
Now that you have a feel for who’s making your credit scores, you’re probably wondering where you can go to find them. There are many places to get one of your credit scores, some free and some paid.
For example, you can view your VantageScore® 3.0 by TransUnion® for free here at Upturn Credit. Many large banks offer the chance to see one of your credit scores for free as well. Finally, you can sign up with a credit reporting bureau to see one of your scores along with their report. Just remember that you get your reports free once per year, so this is not a service you should pay for unless you want to see it more often and to see one of your scores at the same time.
No matter where you go to see one of your credit scores, know that the score you see might not be the same score lenders see. Different lenders can see different scores based on the financial product they provide. Checking your credit score should be a tool to help you understand the general state of your credit. It should not be to see exactly what a lender might see when running your application for credit.
Take charge of your credit: Here’s everything you need to know about credit scores and credit reports.