Unless your credit reports are blank, you probably have multiple credit scores. That's normal. Each score is an attempt to look at the cold, hard numbers in your credit reports and draw conclusions about your fitness as a borrower.

Differences between one scoring system and another can make a particular score more useful in a particular situation, such when you apply for a home mortgage, a credit card, or a personal loan.

That's why we all have many credit scores, but essentially, all credit scores are a measure of risk. A lower score represents a higher risk that a person will fail to repay a loan on time.

As you would imagine, past behavior weighs heavily on your credit score. But credit scores are more than ratings of the past; they also try to predict the future.

Credit score algorithms look at the black-and-white facts in our credit reports (accounts, dollar amounts, payments, dates) and try to read between the lines. They look for certain events and patterns, interpreting these as a sign of your creditworthiness.

For example: Have you ever missed a payment, and if so, what kind of account was it? Did you open multiple accounts during a short time? How much headroom do you generally keep between your credit card balances and their limits? These and many other factors weigh on your credit score.

Credit score models are continually improved to enhance their predictive ability. The latest, most advanced scores from FICO are Score 10 and Score 10 T. The latter could become the new standard in the mortgage industry.

The Road to FICO Score 10

The Fair Isaac Corporation, founded by an engineer (Fair) and a mathematician (Isaac) in 1956, is the leading supplier of credit scores today. VantageScore is the other major player in credit scoring. Both companies evaluate people's credit reports and rate them on a scale of 300 to 850.

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FICO develops new scoring models every few years, both "base" scores and specialized scores meant for particular industries, like automotive lending and credit cards. The models analyze information in credit reports and assign a score that reflects how well a person manages credit.

Before FICO Score 8, data from each of the three credit bureaus contributed to a separate score. Those scores are still in use today. Equifax data is examined for Score 5, Experian data for Score 2, and TransUnion data for Score 4.

Then came a major innovation. FICO Score 8 was the first scoring model to blend information from all three credit reporting agencies. This practice continues with FICO's latest score, Score 10.

FICO Score 10 reads information from all three of your credit reports.

The company explains: "FICO Score 10 relies on the same design and key ingredients of prior models as well as captures the subtle shifts in consumer credit data that have occurred over the 5+ years since FICO Score 9 launched, such as the increasing use of personal loans, especially for purposes of debt consolidation."

As with computer operating systems and new smartphones, the best upgrades continue everything that was working and popular in the old product while enhancing features and performance. Sometimes a product already works so well that it's difficult to change much. FICO Score 10 represents an incremental improvement over FICO Score 9. A little better, more modern, like when the latest smartphone comes in a new color.

FICO Score 10 T, however, represents a major upgrade because it uses a different approach to analyzing credit report data.

FICO Score 10 vs. FICO Score 10 T

Previous credit scoring models use recent facts in your credit reports to drive certain calculations. Most scoring systems emphasize current activity; for example, your last available balances and credit limits, which probably landed on your credit reports a month ago. FICO Score 10 functions this way, but its offshoot, FICO Score 10 T, analyzes a much longer timeframe—two years or more—to discern trends.

"FICO Score 10 T incorporates trended credit bureau data," explains the company's VP of Scores, James Wehmann.¹ "Different than traditional credit bureau data, the use of trended data considers a historical view of data such as account balances for the previous 24+ months, giving lenders more insight into how individuals are managing their credit."

Who Uses FICO Score 10

Fannie Mae and Freddie Mac, publicly traded companies established by Congress to support the U.S. home mortgage system, will require the use of FICO Score 10 T, as was announced in a recent press release.

The companies are not direct lenders; rather, they purchase mortgages from lenders. This replenishes the coffers of lenders so they can originate more mortgages and get more Americans into homes. Then, Fannie Mae and Freddie Mac package the mortgages into securities and sell the securities to investors.

FICO estimates that by switching to FICO Score 10 T, mortgage approval rates can be expanded by 5% without adding incremental risk relative to the current score in use. When FICO Score 10 T becomes the standard for reviewing mortgages at Fannie Mae and Freddie Mac, it could become the credit score most used generally in home loans.

Credit card companies could also benefit by switching from the score they most commonly use. FICO's Ethan Dornhelm says, "We estimate that using the more predictive FICO Score 10 model will enable credit card lenders to reduce their default rates by 13% relative to FICO Score 8 at a cutoff of ~680."

All base FICO scores fall on a scale of 300 to 850, with 670 marking the border between fair and good. Scores over 740 are very good. Scores under 580 are poor. Industry-specific FICO scores have a wider range, 250 to 900, to provide more nuance when a consumer seeks a particular type of loan, such as a car loan.

The credit scores that matter most in a particular situation

How Your FICO Score 10 Is Determined

FICO Score 10 analyzes information from all three credit bureaus, not just one, a technique it inherited from the game-changing FICO Score 8.

FICO Score 10 makes it possible for people to benefit from being good renters. Although renting is not a credit situation (no money is borrowed), rental payments do reflect someone's ability to manage money. Experian Boost, a free service open to anyone who carries at least one credit card, will recognize your rental history. Pinata is another free app that will report your rental payments to the credit bureaus. Allowing rental payments to count towards someone's credit score was an innovation FICO launched with Score 9, and it continues in FICO Score 10.

The exact analysis behind FICO Score 10 is a company secret, but we do know the overall breakdown of FICO credit scores. Here are the categories that comprise your credit score.

Your payment history, 35%

Every potential lender wants to know that you'll make your payments on time, so the biggest factor in your credit score is payment history. Missing one payment won't hurt your FICO Score 10 the way it hurts scores prior to Score 8, but be sure it only happens once.

The money you owe, 30%

This is the total you owe on all loans and credit cards. Your credit score improves when you keep low balances relative to the limits; in other words, you use much less credit than you could, known as your debt utilization ratio.

How far back your credit history goes, 15%

Leave credit card accounts open even if you don't use them because creditors like to look far back.

New credit, 10%

A new account has no history, so it doesn't help your score. Plus, qualifying for a new credit card usually involves a hard credit check, which can drop your score up to five points for as long as a year.

Your credit mix, 10%

Lenders like to see that you can juggle a variety of credit, both revolving credit (credit cards, medical bills) and installment credit (car loan, mortgage).

Advice for Protecting and Raising Your FICO Score 10

FICO Score 10 and FICO Score 10 T may be the new-and-improved products on the shelf, but the best advice for protecting and improving your credit scores has stayed the same since the earliest credit scoring models.

"As long as consumers practice good habits like consistently paying bills on time, lowering their debt as much as possible, and applying for credit only when needed, they can achieve and maintain a good FICO Score 10," FICO says.

Shape up your finances prior to a refi or mortgage

If you always pay your rent on time, you can boost your FICO Score 10 by getting your payment pattern recognized by the credit bureaus. Probably the easiest way to accomplish this is to sign up for the free service Experian Boost (image source: Experian).

Anyone with at least one credit card is eligible to sign up for Experian Boost. Because Experian is one of the three major credit bureaus, when it recognizes your rental history, that information will be seen by FICO scores starting with Score 9.

Check Your Credit Scores for Free

Many credit card companies give their cardholders free access to their credit score. The score could come from one of two places, FICO or VantageScore.

According to CNBC, you can see your FICO score on the apps/websites of these companies if you have an account there: American Express, Bank of America, Citi, Discover, and Wells Fargo. At Capital One, you can see your VantageScore.

FICO Score 10 Key Takeaways

  • FICO touts its two newest scores as the most predictive ever.
  • Fannie Mae and Freddie Mac will soon use FICO Score 10 T.
  • FICO Score 10 T analyzes trending data; that is, a pattern of your credit behavior over a much longer timeframe than previous credit scoring models.
  • You can improve your FICO Score 10 and FICO Score 10 T by reporting rental payments.
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