You are probably aware that many financial service providers use your credit score as a way to get an idea of your financial reputation. However, does a FICO score really provide a good snapshot of your finances? And can you rely on your FICO score to really help you improve your finances?

FICO vs. Other Credit Scores

First of all, it’s important to realize that your credit score is far from a monolithic number. First of all, there is a difference between what the bank sees and what you see when you check your own score. Whether the bank is using its own credit scoring model, or one based on FICO, you are not going to see the same thing that decision makers see when deciding whether or not your finances are the kind of thing they want to take a chance on.

Your FICO Score SnapshotRealize, though, that FICO scores are considered more “official” than others. Even though credit scores are often referred to as FICO — much in the same way that all tissues are often called Kleenex — not every credit scoring model you see is actually based on the trademark FICO score.

Knowing your FICO score is generally a little more helpful to your cause than knowing your Vantage Score, or relying on other credit scoring models that try to compete with FICO. Most lenders and many other financial service providers use the “official” FICO score, even though there are different versions of even the FICO score floating around, and you might not see the same FICO score from one lender to another.

Does a Credit Score Really Reflect Your Level of Financial Responsibility?

One of the biggest problems than many consumers and some consumer advocates have with using credit scores to check your level of financial responsibility is the fact that these scores only focus on your credit situation. So, if you pay cash for most things, and haven’t been keen on using credit, it doesn’t matter how responsible you are, or how much money you have in savings and retirement accounts. Your credit score might be more negative than you think.

In these cases, looking at your credit score, if can look as though you are less responsible with your finances than you actual are. The credit score is only based on the way you handle credit, but it is often treated as though it is a numerical representation of your entire financial picture. This can be disappointing and frustrating when you discover that you can’t get the best rate on a mortgage, or that you miss out on an auto insurance discount because of your credit score.

Another problem is that your credit score might not actually predict your future. While it does reflect your history with credit, it can’t predict what you are doing going forward. If you are getting back on your feet after a job loss or a medical emergency, that’s not reflected in the credit score, and you could suffer for it — even though you are doing everything to keep on track. On top of that, your credit score might not accurately account for your income, and what you can afford.

There are plenty of flaws with the credit scoring system, but until things change many consumers are going to find themselves judged by that three-digit number.



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.