The Complicated World of Credit Scores

Lenders use different credit scores for different purchases.

If you have successfully navigated a website that offers to sell you your credit score, you may think you have all the information you need in order to apply for a loan or new credit card.

Not necessarily. The score you received could be quite different from what a lender receives. Different scores are offered for mortgages, car loans, insurance and more.

Under the Fair Credit Reporting Act that took effect January 1, lenders must either tell those who apply for credit what score was used, or tell them how it was used if the applicant doesn’t receive the best terms available.

Here are some reasons why a credit score (a number between 300 and 850) still won’t tell you how a lender evaluates of you:

* Some lenders give the best rates to people with a score of 740, others may use 760 or higher. Some give credit to people with scores in the high 500s, but others require 620 or more.

* Credit scores don’t reflect whether you are making good financial decisions or poor ones.

If you refinance your home at a lower interest rate, inquiries could show up on your report. Inquiries lower a score.

* Late payments show up on your score for a couple of years, but paying down a high balance has an immediately beneficial impact.

* If you pay your credit card bill in full every month, you don’t get a zero balance on your credit report. The report shows the balance at the end of the billing period, before the payment.

* Rather than checking your score frequently, you are better off making sure the information on your report is correct. Make your payments on time and reduce monthly balances for a month or two before applying for a loan or mortgage.