The Shocking Truth About Your Credit Score — and Which One Really Matters

What is a credit score

I swear, at least once a day I see an ad blaring “Click here to check your credit score!”

The number of companies that have apparently calculated my credit score is dizzying.

Some of you may be wondering as well: Why are there so many credit scores? What’s more, which ones actually matter? Is one better than another?

Here’s what you need to know about credit scores and how they affect you and your cash.

What is a Credit Score?

What is a credit score
muharrem Aner/Getty

Your credit score is a three-digit number based on your payment history, credit utilization, length of credit history, diversity of credit, new credit and other factors.

It’s a measure of how well you’ve managed money in the past, and often used as an indicator of how well you’ll manage money in the future.

Banks and credit card companies use it to determine if they want to lend money to you — and at what rates.

Scores range from 300 to 900, with a score above 650 generally considered “good” by lenders. If your score is lower than that, you may face higher interest rates.

Why Do I Have So Many Credit Scores?

What is a credit score

The best-known and most widely used credit scores are FICO scores, created by the Fair Isaac Corporation, a California-based software company.

Although it’s not actually a credit reporting agency, FICO uses information from the three major national credit reporting agencies — Equifax, Experian and TransUnion — to create FICO credit scores.

Of course, Equifax, Experian and TransUnion also have their own credit scores.

There’s also another up-and-coming score called VantageScore. Like FICO, it uses information from the three major reporting agencies to create its scores.

Then there are the “free” credit scores from sites like Credit Karma and Quizzle.

Each organization and credit bureau uses a different scoring model. One might use different types of data, or use the same data but weigh it differently.

There also are different types of scores within each agency depending on the industry — one score for mortgages, one for auto loans and so on. These companies frequently update their formulas, which results in new scores.

“Really, a person can have as many credit scores as there are credit scoring models,” said Thomas Bright, a spokesman for ClearPoint, a nonprofit finance education group.

Keep in mind: All of these companies are for-profit.

So why there are so many different credit scores? The short answer is because someone can make money off them. You’ll typically pay between $15 and $20 to check your credit score.

Which Credit Score Matters?

What is a credit score

Motives aside, credit scores are useful and necessary for getting a loan or a credit card.

The score used by lenders varies, but what’s important to remember is the credit score you see online is likely different than the one your lender sees.

For example, Equifax puts this disclaimer on its website: “The Equifax Credit Score is based on an Equifax Credit Score model and is not the same as scores used by third parties to assess your creditworthiness.”

FICO scores are still most commonly used among lenders, but the dozens of scoring formulas result in you having many different FICO scores.

Some lenders even have their own scoring models.

One of the biggest misconceptions about credit scores is the idea that the one we see is the same one lenders see.

This bothers the government’s Consumer Financial Protection Bureau (CFPB) because people pay to see their credit score based on the assumption it’s the same one their lender will use to make financing decisions.

Consumers are often surprised and frustrated when they don’t get the financing terms they expected based on the credit score they paid to see.

“It is likely that many consumers incorrectly believe that the scores they purchase are the same scores used by lenders in evaluating their applications for credit,” CFPB says.

“Literally dozens of different credit models are used by lenders. FICO alone has over 49 credit scoring models.”

Bottom line: The scores that matter are the ones used by your lender, which you can’t access on your own. Other scores are educational and can give you a rough estimate of how you’re doing, but may not match up with the score your lender pulls.

CFPB found 20%-27% of consumers are likely to see a credit score significantly different than the score used by their lender — enough to put them in a different credit-quality category.

“Consumers should avoid relying on scores they purchase as the sole basis for assessing their creditworthiness when making important decisions about obtaining credit,” the bureau says.

“Each consumer should be prepared for the possibility that the score he or she sees is meaningfully different from the score used by a lender.”

What Should I Know About Credit Scores?

What is a credit score

So, you have a bunch of different scores and you can’t guess what your credit score will look like to your lender.

Now what?

It’s still important to regularly check those free or educational scores to get a general sense of what your score looks like. You should also check your credit report for errors and to prevent identity theft.

“Regardless of the credit scoring model used, inaccurate adverse information in a consumer’s file (e.g. unpaid accounts that are not the consumer’s, accounts described as paid late that were paid on time), can hurt that consumer’s credit score,” CFPB reports.

You can check your credit report once every 12 months at Each of the three national credit bureaus is required by federal law to annually provide these reports to you for free, the bureau says.

It’s also important to shop around for credit — even if lenders see the same score, they may offer you different loan terms based on their internal guidelines and other parts of your financial portfolio.

Bright suggests getting familiar with the basics — learn the raw components of a credit score so you know how your actions affect your ability to get credit.

It doesn’t matter which credit score your lender uses, as long as it’s good. Pay your bills on time — and in full — every month. Having good credit can save you thousands of dollars in the long run.

“If you worry about one thing, it should be the due date (on your bills) each month,” Bright said. “Despite how complicated this all might seem at first, simply having a perfect payment history will do wonders for your score.”

Your Turn: How much do you think about your credit score?

Sarah Kuta is an education reporter in Boulder, Colorado, with a penchant for weekend thrifting, furniture refurbishment and good deals. Find her on Twitter: @sarahkuta.