Making Sense of Your Numbers

There are many different ways to access your “credit scores”.  Banks frequently provide their customers with one number.  Your credit card company likely provides you with a second number.  Your credit monitoring service provides you with a third.  Interestingly, these numbers are often quite different, so what does it all mean?

The common theme people report is that the scores are almost never the same.  Given that all of these sources are looking at similar data, it seems impossible that they would all arrive at different scores.



The reality is that each source is accessing your score through different sources.  They are also using different formulas to calculate the score you see each time you log in to your account.  Significant variation is not uncommon.

Here we will take a look at the different scores available to consumers and what they actually represent.  I will also provide a personal case study which will provide a great example of the variability consumers can expect when checking their credit scores.

What is a FICO Score?

Credit scoring began in the 1980s when Fair, Isaac and Company (FICO) developed a method to assess consumer credit risk.  Today, the FICO score is the most common credit assessment tool used by financial institutions.



Scores range from 300 up to 850.  The higher your score, the less risk you represent to potential credit issuers.  When you apply for a new line of credit, your approval is generically based on this score.  FICO scores are also commonly reviewed by landlords, insurance companies, potential employers, and many other circumstances.

Your FICO score is determined primarily by the following factors weighted as percentages:

credit score factors
Source: MyFico.com

While the FICO score is without question the “gold standard”, there are other methods to used to assign credit scores.

What is a FAKO Score?

In short, FAKO scores are any credit score assessment that is not a FICO score.  The term certainly has a negative connotation but the truth is that these scores are very valuable for consumers.  Free credit monitoring services like Credit Sesame and Credit Karma are popular services which provide FAKO scores.  They are highly informative and provide a great resource for consumers.

One of the most popular methods to calculate non-FICO scores is called the Vantage Score.  This score assess the same variables as a FICO score but calculates using slightly different formulas.

Importantly, consumers need to understand that most institutions will review your FICO score, not your FAKO score.  This is not to say that it isn’t an important metric to use when measuring your credit health.  The scores are generally very similar but as you will see, there are often substantial differences on a monthly basis.

Long Term Score Trends Are Key

Credit scores are sensitive to change.  If you have recently applied for a new line of credit, opened or closed a credit card, received a new loan, or done any of the hundreds of factors that impact your score, you will see immediate variability.  Consumers should not focus on their score of the day but rather the long term trend of their scores.

Checking your score monthly is the surest way to recognize positive and negative trends.  Daily activities like carrying a large credit card balance may impact your score briefly.  Over a period of months, you will see that this actually does not impact your long term score substantially (so long as your address the debt and pay it off).

Reviewing Data: A Case Study

Over the past several months I have noticed huge variations between my credit scores.  I receive scores from banks, credit card issuers, and credit monitoring services.  Beginning in June I saw my scores drop significantly.  What was interesting is that not all of my scores dropped the same way.

So what happened?  Well, to set up the scenario I had three major changes to my finances in the past several months.  I recently financed a new car (pre-owned, but new to me!).  I also refinanced thousands of dollars of student loan debt at a lower interest rate.  Finally, I had a major expense which I charged to a credit card.

All three of these activities caused a huge disruption to my credit score.  Let’s take a look at the impact reported from two sources.

FICO Score Bank of America
FICO Score – Provided by Bank of America

As you can see, my score dropped 25 points from May to July.  This was most likely the result of new credit inquiries and a new loan reflected on my credit report.  Now let’s take a look at my Credit Karma FAKO score.

FAKO Score Graph Credit Karma
FAKO Score – Provided by Credit Karma

While my FICO score showed a modest drop, you can see that my FAKO score plummeted over 50 points.  It has now risen back to about where it was prior to the finance activities I made over the summer.

Despite significant changes to my credit report, my credit score will soon level back out to it’s long term trend.  For this reason, consumers should not be alarmed by short term drops as long as your are managing your credit properly.

Why Do These Scores Differ?

Both scores showed a drop, but as you can see my FAKO score suffered a much bigger impact.  These scores were reflected similarly with other sources.  I also receive a FICO score from Discover and it barely showed any change at all – a drop of about 10 points.  My FAKO score with Chase Credit Journey showed the largest change, dropping by more than 60 points.

Understanding how these scores are calculated will give us a good idea of the variation.  Both scores review your account changes but FAKO scores can be far more sensitive to change.  During the refinancing of my student loans, my credit reports, per Credit Karma showed two loans during the payoff period.  During this time their calculation was based on a doubling of my student loan debt!

Additionally, I made a very large credit card purchase.  It was paid in full when the statement was due but for one month my score was being calculated by Credit Karma reflecting the large amount of credit card debt.

Both of these factors caused the FAKO models to show a far bigger drop than would have otherwise been reflected.  These scores are updated weekly and provide a “real-time” snapshot of your credit score.  In this case, the score was not accurate.

What To Do When Your Score Changes

As discussed above, the key to understanding your credit score is done so by viewing the long term trends.  If you see a significant drop in your score the first thing you should do is assess what caused the drop.  In my case, I knew that my score would be impacted due to all of the changes I had made to my credit report in a very short period of time.  If you can identify the reason for the drop, there is no cause for alarm.

When a major drop occurs that you do not understand it will be time to review your credit report.  You can access your credit report for free and many credit monitoring services also provide report overviews.  Consumers should review their report to ensure that there is no unauthorized activities.

If your report looks good, the best thing to do is monitor your score closely for the next several months.  In all likelihood you will see your score trend back towards your average.  If your score stays low, then it is time to assess ways to improve your credit.

Maximize Your Credit Scores

There are many resources available to educate yourself on the best ways to improve your credit score.  Several of the most basic rules are the following:

  • Always pay your bills on time
  • Keep a low or zero balance on your credit cards
  • Work on paying off your outstanding debts
  • Diversify your lines of credit as necessary

These simple rules will go a long way towards improving your credit score, however, they only begin to provide a full picture of what is necessary to maintain excellent credit.  The climatex Spider Web Method provides excellent and detailed actions you can take to improve your credit.  This is just one of many excellent guides available online to understand your credit score.

Another great method that provides nearly instant results is understanding your credit card utilization.  Your credit card debt can play a major role in your score (as reflected in my huge FAKO score drop seen above).  Minimizing your debt to credit ratio is one of the fastest ways to boost your score.

For Best Results, Stay Vigilant

As we discussed, your FICO and FAKO scores are excellent tools to monitor your credit health.  All consumers should make sure they have access to at least one of these scores, updated monthly.  Checking your score regularly will keep you informed and able to recognize red flags before they become a problem.

Free services like Credit Sesame and Credit Karma are a great place to begin the process.  You should also check with your bank and credit card issuers to see if they provide you with a credit score.  Whether you are receiving a FICO score or FAKO score is not nearly as important as staying vigilant and understanding how your financial actions impact your credit.

Do you have a favorite credit monitoring service?  How about your best tips for improving your credit score?  Let us know in the comments below!

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