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Credit scores can be confusing! How many credit scores are there? Why does my credit score change? What factors impact my credit score?

These are only a few of the questions about credit scores, so it's no surprise that the easiest thing to do is ignore it. But that's not the best idea because that three-digit number has a major impact on our lives. Having a good understanding of your credit score is important because it can help you achieve your goals quickly and at the lowest possible cost.

To help you understand your credit score a little better, here are three things you need to know:

More Than One
A credit score is generated by two things, a consumers credit history and a formula to apply that data and there are several different credit scores being used to evaluate creditworthiness. You don't have just one score, so a "good" credit score depends on the scoring model you or your lender are reviewing. Each of the three credit bureaus, Equifax, Experian and TransUnion, has its own proprietary credit score. While, there are different formulas, such as FICO and VantageScore, used by lenders to determine creditworthiness. Lenders may even look at different credit score models tailored specifically to the type of credit being applied for based on varying weights to different credit factors.

The credit score(s) you select to monitor on a regular basis will give you reasonable picture of your credit worthiness. At Alliant, we offer the VantageScore free of charge to members to help monitor and improve credit worthiness. Learn more about it at Credit Score.

Changes For Many Reasons
Credit scores can change for the negative by making a late payment on a car, home or credit card, but it can also change for somewhat less obvious reasons too, such as closing an old credit card account. Closing an old credit card account reduces available credit and shortens credit history, thus causing a credit score to decline. Applying for a credit card may increase a credit score, but at the same time it can decrease your credit score if there's a hard inquiry, when a lender views your credit report for the purpose of an application. Other reasons that can cause your credit score to change may include:

• Increasing a credit line on a credit card
• Opening a new credit card and transferring balances
• Increase or decrease in credit card balances
• Paying off all credit card balances
• Making on-time payments 
• Adding a public record to your account
• Having an account go into collections

It's important not to stress over small fluctuations in the score. If you're keeping track of your credit and finances in general, you should easily be able to identify what's impacting your credit score and make changes to improve it. At Alliant, we provide a list of factors that affected your credit score that quarter in order of importance with the VantageScore in Alliant Online Banking.¹

Important Factors
There are six main factors that impact your credit score: open credit card utilization, percent of on-time payments, number of derogatory remarks, average age of open lines of credit, total number of accounts and total hard credit inquiries. When monitoring your credit worthiness, you should also focus on these factors. Review each factor in your credit report and identify how you could improve each for better credit worthiness.

Some of these factors will take time to improve, but making on-time payments, paying down debt and never letting your credit utilization exceed 30% can help you maintain and improve it. Having a high credit score may save you thousands of dollars in interest and premiums when you're in the market to open a credit card, get a loan and obtain insurance.

The VantageScore from Alliant is a good indicator of your credit score, but you should also order a copy of your credit report and review it for issues or errors that may be lowering your score and can be corrected. You can order your free annual credit report by the only provider authorized by the Federal Trade Commission at www.annualcreditreport.com.

Have questions about the VantageScore? Review Credit Score and New Credit Score: Q&A for more information.

For steps to improve your credit score, check out Tips To Improve Your Credit Score.

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¹ The credit score factors are provided together with the credit score by Experian. They are in order of importance and represent a summary of the factors that affect your score. Alliant Credit Union has no insight, other than the reasons below, into why a specific factor is shown for your score. If you have questions or need help with managing your credit score please visit VantageScore website. To obtain a copy of your credit report, go to www.annualcreditreport.com.

Sources: TrueCredit.com, Balance, LearnVest.com, CreditKarma.com, Money.MSN.com, Bankrate.com