Credit Score

What a Credit Score Is

A credit score is a number generated by a statistical model that reads the information in a consumer credit report and condenses it into a single value, typically on a scale running from about 300 to 850. The model does not read a bank account balance, a paycheck, or a tax return. It reads the tradelines, collection accounts, public records, and inquiries that creditors and other furnishers have reported to a credit reporting company, along with the identifying information in that file.

A score is a snapshot rather than a permanent label. It reflects the file as it stood when the model ran, so a newly reported account, an updated balance, a newly reported delinquency, or the aging off of an old item can all change the number a model returns. Scores are also model-specific: a score produced by one lender's system is not interchangeable with a score produced by another.

Where the Data Comes From

Creditors, debt collectors, and other data furnishers send account information to the nationwide credit reporting companies, which are Equifax, Experian, and TransUnion. Each company maintains its own file on a consumer and decides independently which furnishers it accepts data from and how frequently that data is refreshed.

Because the files are separate, their contents can differ. A lender might report an account to two companies but not the third, or might update a balance with one company on a different schedule than another. A score calculated from one company's file can therefore differ from a score calculated from another company's file, and neither is the single authoritative score.

A consumer has no file at a credit reporting company until a furnisher reports information about them. Someone who has never used a credit account, or who has used only accounts that do not report, may have no file at all or a very thin one.

How Scoring Models Calculate a Score

FICO and VantageScore are the two scoring model families most commonly used in United States lending. FICO Scores generally range from 300 to 850. VantageScore models released since its third generation also use a 300 to 850 range, while earlier versions used a 501 to 990 range. Both companies publish general descriptions of the categories their models consider, though the exact formulas are proprietary.

Within each family there are many distinct versions. FICO licenses different score versions to different lenders, and also offers industry-specific versions tailored to mortgage, auto, and bankcard lending. VantageScore likewise releases new versions over time. Two lenders can pull scores on the same day, from the same credit reporting company, and see different numbers because they are running different model versions.

Most models return the score along with reason codes, sometimes called score factors. These are short statements identifying the characteristics in the file that had the most influence on that particular result, and they can differ from one consumer to the next even when the scores are identical.

Factors Scoring Models Typically Weigh

Scoring companies describe their models in terms of broad categories rather than exact percentages, and the relative influence of each category varies by model version and by the contents of the individual file. The categories most commonly described are the following.

Because the weighting is not fixed, the same category can matter more for one file than another. A consumer with a long history and no missed payments may find that amounts owed carry more influence in the calculation, while a consumer with a short history may find that length of history and new credit carry more.

• Payment history, including whether payments were reported on time and how recently any delinquency occurred
• Amounts owed, including total balances and the relationship between revolving balances and revolving credit limits
• Length of credit history, including the age of the oldest account and the average age of all accounts
• New credit, including recently opened accounts and recent inquiries generated by applications
• Credit mix, meaning the variety of account types such as revolving accounts and installment loans

Why One Person Can Have Several Different Scores

Four variables explain most differences between the scores a single consumer sees. The first is the model family: FICO and VantageScore weigh data differently. The second is the model version: newer generations may treat certain data points differently than older ones. The third is the source file, since the three nationwide credit reporting companies do not hold identical records. The fourth is timing, because a file changes as furnishers submit updates.

Scores offered directly to consumers are frequently not the same models a lender uses for a decision. Many free score services provide an educational score, a VantageScore, or a FICO version the lender in question does not license. This is why a score shown in a consumer-facing app may not match the score a mortgage or auto lender pulls, and why the difference is not necessarily an error.

Where to Get Your Credit Reports and Scores

The Fair Credit Reporting Act entitles consumers to one free credit report from each of the three nationwide credit reporting companies every twelve months. Those reports are available through AnnualCreditReport.com, the federally authorized source for the free annual reports. The three companies also make reports available through their own sites, and consumers who have been denied credit or who meet other conditions described in the statute may be entitled to additional free reports.

Credit scores are not covered by the same free-report rule. Some sources provide a score at no charge along with a report, some lenders provide a score to their customers, and some scores are sold. Because the model behind a given score varies by source, it is worth noting which model and which credit reporting company produced any score you view.

Consumers can also request reports by mail or telephone, and the Consumer Financial Protection Bureau publishes guidance on how the free report process works under federal law.

Thin Files, No Score, and Credit Invisibility

Scoring models generally require a minimum amount of recent account activity before they can return a number. A file that is too new, too sparse, or inactive for an extended period may generate no score at all. Industry and regulatory research refers to adults in this position as credit invisible or unscored, and the condition is most common among younger adults, recent immigrants, and people who have relied on cash or on accounts that do not furnish data.

Some scoring models incorporate alternative data, such as reported rent, utility, or telecommunications payment records, when those records are supplied by a data furnisher. Others use trended data, which considers balances over time rather than only the most recent reported figure. Whether a given model uses these inputs depends on the model version and on whether the relevant furnisher reports to the credit reporting company being scored.

Errors and Disputes Under the Fair Credit Reporting Act

The Fair Credit Reporting Act gives consumers the right to dispute information in their file that they believe is inaccurate or incomplete. A dispute can be filed directly with the credit reporting company or with the furnisher that supplied the data. The credit reporting company must generally investigate and respond within thirty days, and it must notify the consumer of the results in writing. Furnishers that receive a dispute directly have similar obligations.

A dispute does not automatically result in a deletion. If the furnisher verifies the information as accurate, it stays on the report, and the consumer may add a brief statement of dispute to the file explaining their position. If the investigation does not resolve the issue, consumers can submit a complaint to the Consumer Financial Protection Bureau or contact their state attorney general's office.

When inaccurate information results from identity theft, IdentityTheft.gov provides a federal reporting tool and an affidavit that consumers can use with creditors and credit reporting companies. The Federal Trade Commission publishes additional material on credit reports and on the rights consumers hold under the statute.