Personal Finance Buzz

Credit scores and credit reports tend to generate interesting discussions. Recently this guest post argued that FICO scores don’t matter.

Year-over-year credit card origination growth rose more than 28 percent between February 2010 and the same month this year, according to the latest statistics from the credit reporting bureau Equifax. This was largely due to a vast increase – totaling more than 75 percent – in the number of cards issued to subprime borrowers, which also saw the amount of credit available to these consumers increase 66 percent.

As someone who has owned/operated a credit message board for 4 years running, I get quite a bit of feedback from consumers. Based on that experience, if I had to pinpoint the #1 most confusing and least understood topic within this niche, do you know what it would be? Credit scores.

And my reason for saying that may not be what you think.

Sure, a credit score is cryptic by nature, since its formula is a secret. But that’s not why it’s so misunderstand. Rather, the reason credit scores are confusing is because most websites that sell scores are misleading consumers.

Consumers looking to raise their credit score should first know what makes up their score in the first place. There are two main types of credit scores: FICO Scores and VantageScores, each with their own formula.

Revolving credit, the type typically associated with credit card debt, fell 4.1 percent in February, marking the second straight month of declines after a surprising spike in the final month of 2010, according to the latest monthly statistics from the Federal Reserve Board. January’s total fell 5.9 percent after a 3 percent increase in December.

The rate of consumers who allowed at least one of their credit card accounts to fall 90 days or more behind on payments fell to 0.74 percent in the first three months of the year, according to the latest quarterly statistics from the credit bureau TransUnion. This rate was down from the 0.88 percent observed in the fourth quarter of last year, and the 1.11 percent in the first quarter of 2010. In addition, it was the lowest rate observed since the third quarter of 1996.

Many people are rather surprised when they look at their credit scores and see that they don’t match up. In some cases, your might find that your credit scores vary. Credit scoring models differ across agencies and financial institutions.