What's a Credit Score? Really.

By Gerri Detweiler

NEW YORK -- (Credit.com) “Do you know your credit score?”

It’s a question you probably hear from time to time, and if you don’t know the answer, it can feel unsettling. It feels like people are talking about you, you don’t know what they are saying, but you know it could be bad. It’s like the worst part of high school.

But the reality is that it’s kind of a trick question. You don’t have just one credit score. It’s not like the SATs in that way. Most people have dozens of credit scores and they are used by different organizations for different reasons. This doesn’t mean that they aren’t important, rather, the credit scoring system is more nuanced and while you should know where you stand overall, and be aware of your credit scores, it’s important to keep it all in perspective.

Why so many scores?

According to some estimates, the average American has somewhere around 35 credit scores, and they are used for a variety of different reasons. Most are designed to predict risk, and they are generally calculated based on data from one or more of the three major credit bureaus (Experian, Transunion and Equifax), but the purposes of the different  scores may vary.

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Broadly speaking , these types of credit scores are available:

Generic scores are designed to predict how consumers may repay a variety of different loans.

Industry scores are created to predict performance on certain types of loans. For example, there are scores specifically tailored to predict risk of missed payment an auto loans.

Custom scores are developed on a lender’s customer base and predict the likelihood of a consumer not paying as agreed with that particular lender.  They are “customized” for the lender’s own specific customer base and purposes. Your credit card issuer, for example, would generate a custom score on your profile, yet would never share it with other entities.

Educational scores are created to show consumers how their credit standing compares to other consumers.

Is one type of score better than the other? Not necessarily. Let’s suppose an auto lender purchases an auto industry specific credit score based on information in your Equifax credit file at the very same time that a credit card company requests one to evaluate you for a credit line increase. And at the same time, you order your own score because you are thinking about shopping for a new credit card.