 Updated Mon, Aug 31 2020 1:47 PM EDT A Facebook iconA Twitter iconA LinkedIn iconAn email icon Credit Score Online Getty Images Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners. A credit score is a three-digit number that lenders use to determine whether you’ll get approved for financial products like credit cards and loans. Credit scores typically range from 300 to 850, but there are dozens of versions — from base scores to industry-specific scores — that make it tricky to know which one you're being evaluated on during the application process. You may check your score with your credit card company or on a personal finance site only to find it differs on another, making it hard to know what credit score range you fall in and which products you have the best chance of qualifying for. And when a lender pulls your credit score, they may request it from a different credit bureau — Experian, Equifax or TransUnion — and/or request a specific version that varies from the one you checked. Most credit scores weigh the same factors, such as payment history, utilization rate, length of credit history, number of new inquiries and variety of credit products. However, there may be score differences for a variety of reasons, which CNBC Select breaks down below.
While there's no exact answer to which credit score matters most, lenders have a clear favorite: FICO® Scores are used in over 90% of lending decisions. While that can help you narrow down which credit score to check, you'll still have to consider the reason why you're checking your credit score. If you're accessing your credit score simply to track your finances, a widely-used base score like FICO® Score 8 works. This version is also helpful for gauging which credit cards you qualify for. If you plan to make a specific purchase, you may want to review an industry-specific credit score. FICO lists the specific scores that are used for various financial products. FICO® Auto Scores are ideal if you want to finance a car with an auto loan, while it's good to check FICO® Scores 2, 5 and 4 if you plan to buy a house. Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party. Updated Tue, Jun 8 2021 3:51 PM EDT A Facebook iconA Twitter iconA LinkedIn iconAn email icon Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners. When you or a prospective lender pulls your credit report, there's a list of all the credit accounts that exist (or have existed) in your name. And if you're a borrower with a healthy credit profile, there's a good chance that list contains a variety of credit types, such as credit cards, a mortgage and/or student loans. What this shows lenders is that you have a mix of credit, including both revolving and installment credit. Having a blend of the two (and, of course, making timely payments on them) is ideal for maintaining the best possible credit score. In fact, your credit mix makes up 10% of your FICO credit score, which is used in over 90% of lending decisions. If you were to pay off an installment loan, such as an auto loan, this could result in a temporary dip in your credit score because it lessens your credit mix. It's not worth worrying too much about this, however, since credit scores fluctuate periodically and you don't want to remain in debt to save a few points. Instead, take the time to understand what credit mix means and how it influences your score. Here are the kinds of revolving and installment credit accounts that do and do not factor into your credit mix, according to Experian. What is included in your credit mix:
What isn't included in your credit mix: When lenders are making a decision on what loans or interest rates to offer you, it helps them to see a steady payment record on a mix of credit types because it shows that you can manage the different obligations that come with borrowing all kinds of debt. Revolving credit (such as credit cards) illustrates to lenders that you are able to borrow varying amounts of money each month and consistently pay it back. Meanwhile, installment credit (such as loans) demonstrates your ability to uphold a long-term agreement and make fixed, on-time payments until you repay what you borrowed. Having a diverse variety of credit products certainly helps in achieving the best credit score. For example, Jim Droske, president of credit counseling company Illinois Credit Services, has a perfect credit score and a healthy mix of credit to show for: six credit cards and three installment loans (two car loans and one mortgage). According to Experian, demonstrating your ability to manage different types of debt may come easier than you think. To use revolving credit, open a credit card and only charge what you know you can pay off in full by the due date. This way, you avoid having to pay interest on a revolving balance. For installment credit, you may be surprised to find out that your car payment, mortgage or student loans already count as this type of credit account. Just make sure that you are making payments on time each month. Information about CreditWise has been collected independently by CNBC and has not been reviewed or provided by the company prior to publication. On Identity Force's secure site Terms apply. To learn more about IdentityForce®, visit their website or call 855-979-1118. To learn more about IdentityForce®, visit their website or call 855-979-1118. Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party. |
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