The credit-scoring industry has often brought confusion to consumers who have no idea that there are different kinds of credit scores -- many of which are not the actual numbers used by lenders. Many people are aware that the FICO credit score is the trusted standard, but did you know there are different versions of the FICO score?
Oakland, CA resident Nancy, 39, recently received a FICO credit score through her Overstock.com MasterCard and was astounded to discover that she earned a credit score of 873.
If you've ever gotten a FICO credit score, you might recall that FICO scores range from 300 to 850.
What Nancy actually got was a FICO 8 Bankcard Score, a special FICO credit score that specifically gauges a consumer's risk based on their history with credit cards. It has a score range of 250 to 900. Nancy's card was issued by First Bankcard, a division of First National Bank of Omaha, which began offering free monthly FICO 8 Bankcard Scores in January.
With a score of 873, Nancy exhibits stellar management of her credit cards, but there is no clear-cut translation of this score into her generic FICO score, which provides a better idea of her overall creditworthiness.
There are also FICO auto and mortgage scores, among others. They fixate on consumer behavior with those respective credit types.
Furthermore, in 2009, the FICO 8 scoring model was introduced to better predict a consumer's credit risk. So, each of these credit scores have a version that uses the previous scoring model and one that uses the FICO 8 scoring formula.
Currently, the only FICO credit score available for purchase by consumers is the FICO score based on the previous scoring model ($19.99 each). FICO has been working to get more lenders to adopt the FICO 8 scoring model.
Knowing that there could be a plethora of metrics to calculate one's credit risk, consumers may struggle to find the most accurate assessment of their credit profile.
Consumers worry too much about finding the one credit score that defines their financial prowess. Responsible credit behavior -- such as on-time payments, staying below the credit limits and keeping low balances -- should generally result in good solid credit scores regardless of the scoring formula.
FICO did not respond to a request for comment.
Stay tuned to see how Nancy obtained such a high FICO 8 Bankcard score...
Diversify Your Investments “Don’t put all your eggs in one basket” can be applied to investing. Spread your money to minimize your risks if a company doesn’t perform as well as expected. This way, you’re also exposed to different assets and will get more gains for your future. Watch.
Make Small Changes To See Big Results One of the biggest money hurdles is getting in control of your money. Instead of making drastic changes -- and falling off the wagon -- track your spending and incorporate new habits slowly. Do you go to the movies once a week? Try going every two weeks. Grab a coffee at Starbucks each morning? Brew your own twice a week. The small savings will add up. Watch.
Know How Much To Save And How Much To Invest If you’re ready to get your feet wet into the stock market, start slow and keep building. You want to be able to put your money into an account and not have to withdraw it. Forget rock-bottom savings account rates for all your money -- put 20 percent into a savings account and the other 80 percent into the stock market. As you get closer to retirement age -- and less willing to take risks with your retirement money -- the percentages will become 50/50. Watch.
Take Advantage Of Compounding Interest Too often, women forget about the power of compounding interest. The earlier you start saving, the less you’ll have to save in your 40s and 50s for retirement. It’s not magic, just math. Watch.
Negotiate A Higher Salary It’s critical to negotiate your salary -- no one else is going to do it for you. Research what people in similar industries and job roles are making, and present it to your supervisor. If your company can’t provide you with more money, you can still negotiate: can they provide you with more vacation days or allow you to work from home once a week? These extra perks might offset a lower paycheck. Watch.
Forget About Cashing In Your 401k If you think of the money sitting in your 401k as an emergency fund or savings account, think again. Withdrawing money early will result in paying taxes just like you would your normal paycheck. Additionally, you will pay both a 10-percent federal tax penalty and a state tax penalty. Watch.
Save Money On Your Online Shopping Make saving money when shopping online a breeze with Bodge’s favorite app, Invisible Hands. This handy program does the price-checking research for you, and will alert you when a different site has a better price -- or let you know that you’ve found the best deal. Watch.
Avoid Financial Rip-Offs When choosing what to invest your money in, if it looks too good to be true, it probably is. Remember that you’re investing and saving for the long term, not to get rich overnight. Watch.
Decide Whether To Rent Or Buy Buying a home is not only an investment, but a permanent tie to a location. More importantly, it can limit job opportunities by making you location dependent. If you’re uncertain about whether you’ll be in the same city in 5-8 years, it’s best to rent. Watch.
Cut Back On What You Want, Not What You Need Identifying what you need versus what you want is an easy way to cut back on spending. You need food -- but ordering out instead of eating the leftovers in your fridge is a want. By being honest with yourself about what you actually need to spend money on, you can start to save. Watch.
Don’t Pay Down Debt With More Debt If you’re trying to pay down debt, avoid taking on more debt -- forget taking out a loan or getting a new credit card to pay another off. Instead, keep paying off debt as your priority, and with each paycheck, add a few extra dollars to your payments. There are no shortcuts, but making on-time payments above the minimum will help you pay your balances as soon as possible. Watch.
Save At The Grocery Store When you’re shopping for groceries, look at the unit price, not just the price per item. While that box of cereal might be $1 cheaper than the other brand, it might also contain less. Use this strategy for boxed items, meats and cheeses -- you’ll save more than by just looking at size differences or brand. Watch.
Follow MyBankTracker on Twitter: www.twitter.com/mybanktracker