A credit report includes information such as where you live, whether you pay your bills on time and if you have any arrests on your record. Your three-digit credit score is a three-digit number generated by a mathematical algorithm using information in your credit report. Your credit score determines your credit worthiness. Lenders use credit scores when qualifying you for a loan as well as establishing the terms of the loan. There are several types of credit scores available to lenders, including the popular FICO score and the TransRisk score created by Credit Karma. Though these scores are similar, there are some basic differences between the two.
The greatest difference between the TransRisk credit score and the FICO credit score is that the vast majority of mortgage lenders use FICO when determining whether you are a high or low risk to default on your mortgage loan. That makes this the most important credit score for consumers seeking mortgage financing to buy a house. The lower this score, the less likely you are to obtain a mortgage loan or one a favorable interest rate.
Fair Isaac Corporation is the company behind the FICO score. It compiles this three-digit score, which can range from 300 on the low end to 850 on the high, by analyzing the credit reports maintained on you by the big-three credit bureaus, TransUnion, Equifax and Experian. Missed or late payments will lower your FICO score, as will a large amount of credit-card debt. Your score might also fall if you have too many open credit-card accounts. And it will definitely fall if you've declared bankruptcy or went through a foreclosure in the last seven to 10 years. In general, lenders consider a FICO score of 740 or higher as a good one. If your score is in that range, you'll likely qualify for lower interest rates.
Your TransRisk score is the credit score compiled by Credit Karma from the information provided by just one of the national credit bureaus, TransUnion. It is known as an educational score because most mortgage lenders do not use it when making credit decisions. The difference between your TransRisk score and your FICO credit score is sometimes significant, but the TransRisk score also ranges from a low of 300 to a high of 850.
Improving your Scores
It's not as important to worry about individual credit scores as it is to concentrate on your overall credit health. If your FICO score is a high 780 and your TransRisk score is 750, it's a sign that you've done a good job managing your credit. If you'd like to improve your scores, though, you can do so by establishing a new history of paying all of your bills on time. Paying down as much of your credit-card debt as possible will also help boost your scores.
- George Doyle/Stockbyte/Getty Images
- Does Having Too Many Credit Cards With a Zero Balance Affect My Credit Rating?
- What Does "Rescore" Mean on a Mortgage Loan Application?
- Does a Credit Score Lower When Pulled for a Mortgage?
- Does an Increased Credit Limit Hurt a Credit Score?
- Does Paying Off a Mortgage Early Help Your Credit Score?
- Does a Late Mortgage Payment Harm the Chance to Refinance?
- Will Early Mortgage Payoff Negatively Affect Credit Rating?
- Does Being a Co-applicant Improve My Credit?