Credit Scores - What are the types and why do they vary?

FICO score is a credit score calculated on the basis of the FICO Scoring Model developed by the Fair Isaac Corporation. In most cases, when people speak about credit scores, the FICO credit score is what they mean. Consumers can access different versions of the FICO score at the 2 bureaus - Equifax and TransUnion. These scores are known as Beacon score and Empirica.

The consumer FICO scores calculated by Experian are sold off to lenders only. Consumers can't access them. However, consumers can find their credit scores (based on Experian data) online at Experian. They can even request for a free credit report from Experian as they do from other bureaus.

Usually FICO credit scores range from 300 to 850. The higher the score, the lower will be risk in offering you a loan. A FICO score equal to or above 700 can be considered as a good credit score. And you're likely to qualify for some of the best deals at affordable rates.

A score chart helps you get an idea of credit score ratings based upon the credit scores you have. The credit score chart is given below:

• 730+ - Excellent
• 700 - 729 - Good
• 670 - 699 - Needs a closer look
• 585 - 699 - Higher risk
• Below 585 - Limited credit history

As per the FCRA laws, anyone is entitled to a free copy of credit report once a year from each of the bureaus. But free credit scores are not available. You'll have to place an order with the bureaus and pay a fee (as set by the Federal Trade Commission) if you'd like to get your credit score. You may apply for credit scores online at www.annualcreditreport.com or contact them at the toll free number 877-322-8228.

It's a system by which credit bureaus figure out your scores based on the information that is available from your credit report. The bureaus use a statistical program to compare the loan repayment history of consumers with similar profiles. Then they award points for each such item that helps to find out the consumer who can easily pay off a debt. The total number of points adds up to your credit score.

The major credit bureaus - Experian, Equifax and TransUnion follow the FICO scoring model (developed by Fair Issac Corporation) to calculate the FICO score. But the scores differ as because they use minor variations in the FICO Scoring model as well as assign different points to each item on your credit report.

Not all lenders/creditors and collection agencies will report your credit information to the same credit bureau. Therefore, the credit score you get from Experian may differ from what you receive from Equifax. Besides, your credit scores change from time to time based on the credit transactions you go through. So, make sure that your creditors update the bureaus with your latest credit details.

The credit ratings may vary from one lender/creditor to another depending upon the items (such as late payments on revolving accounts, mortgage lates, credit card balances etc) they consider after reviewing your credit report. For instance, an auto loan provider may leave out an item which a mortgage lender would consider while providing credit score ratings.

Mortgage lenders consider the middle score - the one that comes in between the maximum and minimum scores you receive from the bureaus. But often lenders may not use the middle score in order to evaluate your creditworthiness. This is because the credit report you pull out from the bureau is based on the Consumer Model whereas your lender may prefer to calculate the score using a different scoring system - the Mortgage Model.

The information used for both Models may be the same but the importance given to each tradeline may vary. The Mortgage Model gives more emphasis to the tradeline, which can affect your mortgage loan. Thus, your chances of getting a mortgage at favorable rates may depend more upon Mortgage Credit Scores as compared to the regular score.

Apart from the FICO Scores, there are Alternative scores developed for consumers with poor credit. The Alternative scores are based on your bill paying history, outstanding loan balance, the type of credit accounts etc.

As lenders pull out your credit report from different bureaus, therefore not all of them will give you the same credit score rating. Hence, you don't get similar offers and rates from lenders. To avoid such discrepancy, the Vantage score has been introduced. Such a score ranges from 501 to 990. It is calculated the same way by each bureau. Thus, a Vantage score of 770 at Equifax will be the same at Experian, provided similar information is reported to the bureaus.

With market changes including rise in delinquencies and foreclosures, lending standards get tighter. Hence qualifying for loans is tough especially if you don't have a good credit record and score. Especially when it comes to getting a mortgage, loans which are not score driven need you to have a minimum of 580 credit score. So, it's important to protect your credit standing and maintain a good score.