It’s a question I am asked all the time: What’s a good credit score? The answer depends on what you’re applying for, says John Ulzheimer, the president of consumer education at CreditSesame.com.
“Different lending markets have a different tolerance, and what’s great in the auto market may not be great in the mortgage market,” he says. “Likewise, what’s considered OK in the auto market may not be considered OK in the credit card market.”
What that means is you should strive for the highest score you can — the range tops out at 850 — while keeping in mind the following:
VantageScore is making a play. There are two main credit scoring models: the FICO score, which you’ve no doubt heard about, and the VantageScore, which is a newer competitor created by the three major credit bureaus (Experian, Equifax and TransUnion). Until fairly recently, most experts maintained that the FICO score was the score consumers should focus on. It was the score lenders were using, and that meant it was the score borrowers should be pulling before applying for a loan.
But VantageScore is becoming increasingly relevant in today’s lending environment. Some 2,000 lenders used VantageScore in 2014 — including six of the 10 largest banks — and 1 billion scores were calculated and used by lenders last year, according to the company.
That’s impressive, says Ulzheimer, and it marks a shift in the advice here. He recommends pulling your FICO score and your VantageScore before applying for major credit, such as a mortgage or auto loan. Because a lender may use either (or both), you want to have an idea of where you stand, so you can potentially postpone your application if you find you need to bring your score up.
The VantageScore and FICO score now operate on the same scale — a range of 300 to 850, with the higher number the better — and your number from both should be fairly similar. And if they’re not? “That depends on the actual scores,” says Ulzheimer. “If you have a VantageScore of 800 and a FICO score of 840, the 40-point difference is meaningless because both scores say the same thing about you, which is that you are essentially void of risk.” If one score puts you in the “excellent” category and another rates you just “good” (more on this below), that’s cause for concern. You can ask a lender which score model they use, but it may not tell you.
You have many scores. Not only are there three versions (one from each credit bureau) of the VantageScore and the FICO score, there also are scores calculated from older scoring models and scores calculated for specific types of lenders. “If you get your score off myFICO.com or your credit card statement, it’s very unlikely that it exactly matches the score your lender is using,” says Greg Lull, the head of consumer insights at CreditKarma.com.
That’s not something to fret over — again, unless there is a drastic difference. “I wouldn’t feel comfortable if two of my scores are good and one is bad,” explains Lull. In that case, it’s likely the bureau with the bad score has some misinformation — or information that hasn’t yet been reported to the other two bureaus. Look over your credit report from each bureau carefully (you can get free copies at AnnualCreditReport.com). If your scores are in the same range, you can feel confident that lenders are seeing something similar.
Different lenders require different scores. As I noted above, the credit score required for the best interest rate — and sometimes for a loan approval — varies by lender and market. But a score of 760 and above — both VantageScore and FICO — will generally guarantee you the best deals in the mortgage and auto markets, according to Ulzheimer.
That’s why you should be concerned if your VantageScore is 760 and your FICO score is 750 — that 10-point difference can drop you down a level in the eyes of lenders. You can find out where to get a VantageScore — often for free — by visiting its website. You can purchase scores from FICO for $19.95 each.