Credit scores run the world. Okay, maybe that is an overstatement, but the truth is that your credit scores will have a massive influence over your life. In fact, your credit scores exert nearly as much control over the financial quality of your life as does your income.
If you are wise then you already know that learning what it takes to keep your credit reports and scores in stellar shape is a very important goal - one of the most important wealth building goals you can make for yourself. Yet if you are a natural born overachiever and are shooting for the stars with your credit scores you might find yourself a bit disappointed. Achieving the ever elusive perfect credit score of 850 might actually be downright impossible for you right now thanks to a not-so-well known component of credit scoring models - the scorecard.
What Is a Credit Scorecard?
Behind the scenes of every credit scoring model there are multiple scorecards at work. Scorecards evaluate the information on your credit reports and turn that information into credit score points which are added up and delivered to a lender in the form of a credit score. The way that scorecards evaluate the information on your credit reports is by asking questions - questions such as "Are there any late payments present?" The answers to these questions are known as "characteristics." If the answer to the previous question about the presence of late payments was "yes" then you would earn less points to be added to your overall credit score than those which you would earn if the answer to the question was "no."
Scorecards are the nuts and bolts of a credit scoring system. They set the rules for how your credit scores are calculated. Without scorecards it would be impossible for a lender to ever get a copy of your credit scores.
How Different Scorecards Impact You
As mentioned above, every major credit scoring model features multiple scorecards. Depending upon the information contained in your credit reports you are assigned a specific scorecard each time your credit scores are calculated. When FICO releases a new credit scoring model, such as the most recently released FICO 9, what most consumers and even financial professionals do not realize is that - thanks to the existence of scorecards inside of the scoring model - all consumers credit reports are not graded according to the exact same scale. Instead, scorecards will separate consumers into like or homogenous groups and those groups will have their credit reports scored differently.
For example, there are separate scorecards for consumers who have filed bankruptcy or those who have delinquencies (late payments) present on their reports. There are scorecards for consumers with thin or young credit files (not many accounts) and files for consumers without delinquencies as well. While FICO and VantageScore do not disclose the actual types or numbers of scorecards working behind the scenes of their credit scoring models, it would not be unusual for there to be 10 or more scorecards in existence for a single credit scoring model.
The most common credit scoring range for consumers, especially for the most popular FICO and VantageScore scoring models, is 300 - 850. Therefore, if you ask were to ask most credit experts what is the highest credit score you could possibly earn you would probably receive "850" as an answer. Not so fast. 850 may be the highest credit score available, but that does not necessarily mean that an 850 is available to you, at least not at immediately. If you have a bankruptcy on your credit reports, for example, then you would find yourself being scored by a bankruptcy scorecard.
Scorecards designed for those with derogatory information do not have the same maximum credit score possibility, 850, as those scorecards without any derogatory information would have. As a result, if you did have a past bankruptcy on your credit reports then achieving an 850 credit score would be impossible for you until the bankruptcy (and any other derogatory information) was removed and your report was able to be scored by a scorecard which actually included an 850 maximum credit score as an option.
Michelle Black is an author and leading credit expert with over 13 years of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.