FICO holds the distinction of most reliable scoring model thanks in no small part to its longstanding track record. Fair Isaac Company began computing these scores back in 1989. They have since revised the algorithms a number of times in the past over three decades to adjust for shifting factors so that they produce continuously dependable credit scores. 

The traditional FICO score model will produce a score for you from 300 to 850. Scores of less than 600 equate to poor. If your score is higher than 740 then this is deemed to be excellent. The ranges in between 600 and 740 mean from average to above average credit worthiness. 

The New FICO Score 9 Model

In 2014, FICO introduced its FICO 9 scoring model. The primary revision in this model was to reduce the importance of unpaid medical bills. The reasoning behind this is that medical debts that are not paid are not truly financial health indicators. 

You might be waiting for insurance to pay a medical bill or simply be unaware that a medical bill had been given over to a collection agency. For some people, this important change allowed their credit score to increase by up to 25 points. 

Other changes in 2017 stopped collectors from reporting late medical debts that were not yet 180 days delinquent. Year 2017 also saw the three credit reporting bureaus drop all of their data on civil judgments and the tax lien records from their files. FICO reported that this helped the scores of around six percent of consumers. 

Before FICO 9 There Was FICO 8

Before FICO 9 came out, FICO 8 (that the company developed in 2009) was the standard credit score version. FICO 8 remains the most commonly utilized score of the lending industry. FICO 8’s distinguishing features were to penalize you for charging near your total credit limit each month and to provide clemency if you had only a single late payment of over 30 days. 

It is worth noting that each time FICO releases an updated version on its scoring models, lenders may keep the version they are using or upgrade. FICO 8 has remained the overwhelming favorite simply because it costs so much to upgrade to the new model. There are lenders still utilizing even FICO 5 models. 

You can ask your lender which model they are using when you go through the application process. 

FICO scores typically do not change that much over the short term. The exception is if you start missing payments or showing charge offs and defaults. Not everyone has a FICO score either. If you do not have credit, you will fall into the category of what experts call “credit invisible.” 

You must have six months of payments reported to the credit bureaus in order to have a FICO score. 

The second main scoring model in use today is the Vantage Score model. The three credit bureaus Experian, Equifax, and TransUnion made a rare show of unity back in 2006 when they decided that they would create a competitor to FICO in an effort to standardize credit scores. The end result was to increase the number of credit scores available to lenders and creditors. 

The Vantage Score Model

Vantage Score’s model considers similar data to FICO but weights them differently. They look at on time payment of your bills, maintaining lower credit card balances, and taking on too many new credit obligations to compile their score. Vantage’s primary advantage for people who are new to credit is that they can generate a score for you in as little as two months from your first reported credit card payments. 

FICO scores are different from generic credit scores. They utilize a proprietary set of algorithms to come up with your credit risk using the information found within your personal credit reports. Other companies will often pattern their credit scores to look as close to a FICO credit score as they can, but as FICO notes, this can result in scores that are even 100 points apart from the gold standard in the industry. 

Even a couple of points can determine whether you get a favorable interest rate and set of terms (saving you as much as thousands of dollars over the term of the loan or credit).

The Different Types of Credit Scores Explained

The topic of credit scores can be more confusing than you might think because of the simple fact that there is no single credit score. Three credit bureaus keep your credit history independently of one another (TransUnion, Experian, and Equifax) and two different companies compute credit scores. 

Because there are so many different methods for scoring credit that make up your score, these numerous models will mean that your personal score can range by a number of points. This depends on whose model is being used and what kind of business is requesting it (for example, a bank, an auto dealership, or a department store). 

90% of Lenders and Creditors Use the FICO Score

When most people think of a credit score, they are talking about the FICO score. The Fair Isaac Company generates this. Ninety percent of lenders and creditors use FICO scores in their determinations. Yet apart from its main score, FICO has over 50 different variations of your credit score that it makes available to lenders. It means that your score will vary somewhat depending on the company asking for it and what factors were most important to them in determining your score. 

As an example, a department store FICO score they generate for you could be a little better than your FICO score sent to a bank deciding on approving you for a car loan. Both of these will be somewhat different from your insurance-based FICO score. All of these will be a little different from your mortgage loan FICO score. 

The Less Important Vantage Score

The other main credit scoring company produces Vantage Scores. Vantage was created as an alliance by the three main credit bureaus to try to reconcile differences between the various bureaus and to standardize the results. While Vantage’s prominence has risen since the creation of the company in 2006, their Vantage Score is still less important by far than your FICO score. 

All else being equal, you want to have good credit scores generated by both FICO and Vantage Score. 

Each of the three principle credit reporting bureaus also generates its own credit scores. These will vary somewhat as some creditors and lenders may not report your credit and payment history to all three bureaus. A lender or creditor can choose to request one or more of these reports to ascertain whether or not to extend you credit or a loan in determining your credit worthiness.

One thing that has made understanding your credit score easier is that Vantage Score adjusted its credit score range to match that of FICO. Your credit score will range from 300 to 850 with either company.

These credit scoring models are created using data from the credit bureaus to analyze your worthiness to receive and ability to manage credit. The agencies choose important characteristics contained in your patterns for paying credit, analyze these, then compute a credit score for you. 

How is Your Credit Score Calculated?

They calculate your scores looking at your timeliness of payments, your payment record, numbers and totals of debt, numbers of credit cards that you have, and any credit charge offs. 

Different weightings will be assigned to each component in the formula of the model to assign a credit score dependent on this evaluation. This number will range from a possible low of 300 to a highest possible score of 850. 

Lenders then employ these credit scores to ascertain the level of risk in issuing you a loan, your loan terms, and its interest rate. With a higher credit score, your loan terms will be more advantageous. You can see why it is important to understand your credit score model and how you can improve this. Next we will look at the two main models that FICO and Vantage Score use so that you can grasp how they judge each component category. 

What Exactly Is A Credit Score?

Your credit score is a financial calculation of your past credit history and your capabilities of managing money. Lenders and creditors employ these scores to decide on credit approval, credit limits, and interest rates.

Because the measurement of your financial health often comes down to a single number (your credit score), it is essential for you to learn how you can boost your score and to make good choices to maintain it.  

Many different groups will see your credit score throughout your professional life. This starts with creditors and lenders when you apply for credit cards, car loans, and mortgages, but it does not stop there.

Cell phone and utility companies considering charging you deposits, insurance companies determining your auto insurance rates, and even employers deciding who to hire (about 50 percent check prospective employees scores nowadays) will all look at your credit score. 

When these groups check your scores it causes a hard inquiry that the credit bureaus will note. Checking your own score does not affect it. 

Lending decisions are heavily reliant on credit scores, but it is not the only element that lenders consider. They will also look at your income, your debt to income ratio (DTI), and your past history of timely paying bills. 

This is why experts recommend that you maintain a DTI of below 30 percent whenever possible. 

The Most Crucial Benefits of Having a Good Credit Score

If you lack this personal financial attribute, this will likely cost you literally tens of thousands of dollars (or possibly even hundreds of thousands of dollars) over your lifetime.

Good credit means that you can get favorable interest rates on car loans (or leases) and mortgages on houses. Bad credit will cause you to pay sometimes exorbitant rates for these same loans (if you lucky to get one).

Consider the tangible example of a thirty year fixed rate mortgage for $300,000 on a house for which you make a 20 percent down payment. With really good credit you may qualify for a 4.061 percent interest rate and an estimated monthly payment of $1,432 per month. With less good credit, you may instead get a 4.563 percent interest rate that translates to an estimated monthly payment of $1,520.

See for yourself here: Mortgage Payment Comparison

This half a percentage point interest rate amounts to about a $90 difference in monthly payments. It may not sound like much on the surface, but when you multiply it by 360 months then you get a lifetime loan payment difference of $31,680 for the same house and mortgage. 

Having good credit will measurably improve your life in so many areas. In this article we will consider the many personal advantages to good credit. These include psychological benefits, travel/vacation and entertainment benefits, price protection and warranties benefits, security and safety benefits, and financial benefits. 

The Psychological Benefits of Good Credit Score

You can not overlook or underestimate the psychological benefits that come with having good credit. If you do not have it, then every time that you apply for credit will be the next in a series of potentially embarrassing moments.

This is only the beginning though. 

The Psychological Benefits of Good Credit Score
Photo by Edu Lauton on Unsplash

Bad credit causes so many problems that may not immediately come to mind. If your credit is poor and you are behind on your bills, you will likely not sleep well at night because of abusive collector calls and the stress these create. You will suffer from the frustration and disruption of fighting with family members because of money problems.

With good credit, you will feel financially secure for yourself and for your family. This provides you with both the confidence and stability that you crave in life. Good credit means that you are well prepared for any unforeseen financial emergencies. When you are ready to buy a car, a house, or take out a personal loan, it will leave you in a stronger negotiating position. 

Your odds of being approved for these loans and credit cards are much higher with superior credit.  

Good credit can make a big difference in your professional life as well as for your personal one. Should you need to rent a house or an apartment, you will find it easier to get approved when you have good credit. You can get qualified for a mortgage loan application easier, with a potentially lower down payment, and at a more competitive interest rate that translates to tens of thousands of dollars over the life of the loan as we saw in the earlier example. 

Since around half of employers now check the credit of their prospective applicants, having good credit can determine whether or not you get a competitive job. This alone could radically impact the rest of your life. 

The Travel, Vacation, and Entertainment Benefits

There are countless benefits to having good credit where travel and entertainment are concerned as well. If you are able to qualify for some of the best travel perks credit cards offered today (like Chase Sapphire and American Express), this can dramatically impact your vacations and even frequency of travel in your life. 

The Travel, Vacation, and Entertainment Benefits
Photo by Dino Reichmuth on Unsplash

Let’s look at just a few examples of travel benefits that you gain with these types of valuable credit cards.

For starters, you will be able to purchase less expensive airline tickets or to receive airline upgrades using your bonus miles in the travel rewards program. This can save literally hundreds of dollars every time you use it. You also receive a range of insurances for your trip through these travel rewards credit cards and programs. It starts with free trip cancellation insurance, extends to travel accident insurance, and often includes even travel interruption insurance policies. 

The peace of mind that these policies provide is invaluable and allows you to only worry about enjoying your vacation.

Another great benefit is the luggage protection policy that these rewards cards typically include. Perhaps the greatest savings with luggage comes down to the free checked bag many cards like Chase Sapphire and American Express offer. This perk is a really big deal, in particular if you are travelling as a family. 

Just the savings on a free checked bag (per traveller) can amount to $50 per person, or over $200 when travelling with a family of four. 

Having fantastic travel rewards credit cards from good credit can also allow you to qualify for a less expensive weekly rate for vacation rentals and even rental cars. It can give you comfortable perks like access to airport lounges (with food and drinks provided) and concierge services on your trip that ensure you get the most out of your travel. Rewards programs can provide you with significant financial savings through such perks as free hotel stays, free rounds of golf, and even free museum entrances. 

You can even get Uber credit for ride shares. 

A major perk for concert lovers (that cards like American Express provide) is the ability to access tickets before they go on sale to the public and to experience VIP packages. You can see how having strong reward credit cards can impact your ability to take more trips and to enjoy vacations and entertainment on a significant level.

Price Protection, Warranties, and Guarantees Benefits

This is an area of good credit benefits that many people overlook. It can save you countless headaches and frustration (when you buy things) if you have credit cards with which to purchase them. Many of today’s Visa and Mastercard branded credit cards come with purchase protection like price guarantee protection. 

Price Protection, Warranties, and Guarantees Benefits
Photo by Diane Walton on Unsplash

They will also give you guaranteed returns if an item is not what you expected and extended warranties in case it stops working or breaks. 

Discover cards are famous for offering quarterly cash back on everyday purchases like gas, groceries, and consumer goods. This cash back can amount to several hundred dollars per year. Over a decade of using these cash back cards you can receive back literally thousands of dollars in cash back rewards. Found money like this makes a significant impact on your ability to save and spend over time.

Security and Safety Benefits of Good Credit Score

Having good credit can save you in very practical ways too. Your financial health can be easily destroyed (or severely set back at least) by fraud. Good credit will allow you to receive credit monitoring services and alerts provided by credit cards through Bank of America, Chase, Citibank, and Barclays.

You will know if someone is using your identity to open credit cards in a matter of weeks rather than accidentally finding out months or even years later when the damage can be catastrophic. 

These credit cards can also provide you with money saving features like mobile phone insurance and car rental collision damage insurance. If your phone stops working within a certain period of time, the insurance will repair or replace it. When you rent a car, instead of needing to pay for the expensive rental collision insurance, you can rest confident that it will be provided by major reward credit cards such as American Express and Chase Sapphire rewards. 

This savings by itself can amount to over a hundred dollars with a one to two week auto rental. 

The Financial Benefits of Good Credit Score

The financial advantages to having good credit can literally change your financial future. This starts with lower interest rates on loans, car loans, and credit cards and extends to better rates on car leases and mortgages to name a few.

The Financial Benefits of Good Credit Score
Photo by Fabian Blank on Unsplash

Differences in car insurance rates can be stunning between people with good credit and poor credit. 

According to the consumer website NerdWallet, drivers who possess bad credit pay an average of $1,270 more per year in car insurance premiums nationwide. This amounts to nearly $13,000 in savings (for people with good credit) over a ten year period. 

The financial benefits of good credit extend to rates and limits on credit cards too. With solid credit scores, you will become eligible for higher reward, high limit credit cards that offer lower interest rates on carried balances. You will be able to participate in lucrative rewards programs that translate to double points for every dollar spent (as with Chase Sapphire). 

Good credit will translate to your receiving approval with higher limits on your new cards as well. It can mean access to zero percent interest rate offers on balance transfers from credit cards like Chase Slate (Credit Karma’s top pick for balance transfer offers). 

Besides these balance transfer offers, you will be able to qualify to refinance your existing loans (like auto loans and mortgages) at more competitive interest rates through banks. 

Having good credit can make a meaningful difference for you financially with cell phones and utilities too. When you apply to start a new cell phone contract, the mobile phone company will quietly check your credit. If your credit score is strong, then you will be able to qualify for a cell phone without having to pay a several hundred dollars security deposit. 

Similarly when you apply for electric and water utilities, they will pull your credit to determine if you need to pay a $200 or higher security deposit. These security deposits are more than just a nuisance; they sap away your savings and reserves and pay you no interest. 

The savings available to good credit holding individuals seem like they are endless because they really are. As you have already seen, this impacts everything from how much money you will pay to finance a house or a car (for potentially years or even decades) to whether or not you will be able to beat out the competition for a good job. 

High Credit Score Secrets

Poor Credit Score Could Cost You Hundreds of Thousands of Dollars!

Increasing your score from ‘fair’ to ‘good’ saves you an average of $86,200* over a lifetime. Image what you could do with that money.

Did you know that 82% of financial problems are due to a lack of credit card knowledge? With over 75 million people in the United States in need of credit improvement or repair, one of the largest issues is the lack of credit know-how.

A good credit score is essential if you want to enjoy financial freedom.

Learn How to Use Credit Cards to Build Good Credit

Good credit doesn’t happen overnight. Discover the most effective strategies to boost your credit score from as low as 450 points to over 810. Understand the tactics to build excellent credit for yourself and how to guard that good score for a lifetime.

Improve Your Credit Score in 45-60 Days or Less

This practical credit compendium reveals over 50 ways you can instantly boost your credit rating. Understand the exact mathematical algorithm that all 3 major credit bureaus use to calculate your credit score. Learn what actions you can take to improve your credit score and what behavior will demote it.

High Credit Score Secrets Reveals:

  • How to get free credit reports and monitoring services
  • Quick solutions to the most common credit problems
  • Best credit practice based on age and profession
  • What credit cards to use based on your financial needs
  • Understand exactly what credit agencies are looking for
  • Most effective ways to build and improve your credit score
  • Step-by-step process to settling your debts
  • Best identity theft protection and monitoring services

Includes simple and easy to follow instructions on how to handle credit bureaus if they refuse to remove inaccurate, unverifiable and questionable information. What you need to know about the recent consumer-friendly reforms in lending, credit score calculation, and credit bureau behavior.

Smart Do It Yourself Credit Repair

Learn the exact methods that the credit bureaus don’t want you to know. Apply the simple step-by-step process the experts use to delete all derogatory items from your credit reports. Bankruptcies, late payments, repossession, collections, judgments, liens, etc. Imagine being pre-qualified for your dream home, the car you always wanted, the lowest interest on any loan, and credit cards with zero interest rates over long periods of time.

Don’t let bad credit hold you back from achieving financial freedom. Your credit score not only influences all your future choices, but it also can save you thousands of dollars. In today’s financial driven world it is the most critical decision to keep educating yourself.

Book Review by Ray F

I see High Credit Score Secrets as a valuable reference book. It’s accessible language, formatting of financial information into digestible sections, repetition of important concepts and terms, and step-by-step internal “guides,” make it your “go to” reference whenever you have credit-related questions or situations.

What this information provides is a foundational understanding of credit that will enable you to create a solid strategy for handling your own. You will learn how to stay out of financial trouble and what the possibilities are for leveraging a good credit score into credit card perks and bonuses (lodging and travel discounts, etc.). Indeed, the section on credit cards suggestions for your age and life situation is invaluable.

I have been personally dealing with credit, credit cards, loans and mortgages for many years. The concepts in High Credit Score Secrets rang many bells for me, making sense of a number of credit experiences in my life. I see that I’ve been both lucky and remiss at times. I think now, having read this book, I can handle things better. And if you take Mr. Herold’s advice to heart, so can you.

You Deserve to Have Good Credit

Don’t be afraid to step up and get a handle on your credit score and report. It’s not rocket science and you have the right to know how you can get good credit and keep it. 

Start raising your credit score. Pre-order your copy now and save 75% on the Kindle version!