Why Are Credit Scores So Confusing?

If credit scores confuse you, you’re hardly the only one to feel that way. Even many lenders think they’re hard for consumers to understand.

VantageScore Solutions, a credit scoring company created by the three major credit reporting agencies, recently surveyed more than 200 lenders about a credit score part that often confuses consumers: reason codes.

When you get your credit score, you’re no doubt most interested in the three-digit number that tells lenders whether or not you’re a good credit risk. But there’s more to getting your credit score than the actual score. Whether you buy your score, get it through a credit card account or access it for free on sites like Credit.com, you get the three-digit score in addition to an explanation of why your score is what it is.

Say you’re looking at a score you purchased online: The score comes with a list of reason codes, which tell you what in your credit report is having the biggest impact on your credit.

More than 75% of lenders surveyed by VantageScore said they are concerned consumers don’t understand those disclosures. Reason codes also aren’t standardized, so the codes you see associated with a FICO Score will be different than those following your VantageScore, and so on. The codes could be letters or numbers — the point is they’re different and, as a result, sometimes confusing.

But why do they have to use codes? Shouldn’t your credit score be as easy to understand as possible? In that same VantageScore survey, 33% of lenders said reason codes would be easier for consumers to understand if they were written in “clearer and easier-to-understand language.”

It’s not like you get your credit score with a bunch of undecipherable symbols attached to it — the explanation of the codes is included, but people generally like things to be as clear as possible. Rather than codes, it would probably be more helpful to see something like “This is what you do well,” and “This is what you need to improve.”

VantageScore has an entire website (ReasonCode.org) dedicated to helping people understand their reason codes. That’s good, because according to their survey, only 10% of lenders think their customers have a good understanding of reason codes.

Anything that makes credit easier to grasp is probably a good thing, considering how important it is to understand your credit. It has an impact on whether or not you can qualify for the loans you want and how high your interest rates are, so if your credit isn’t in great shape, you’re going to want to know why.

If you’re looking for an explanation of your credit score, you can get two scores for free with a Credit.com account, and it can tell you — in plain English — what is helping and hurting your score. You can also make a six-month plan for improving your score, based on those explanations.

It may not always seem this way, but credit can be ridiculously simple. The first step to understanding it is to regularly review your credit reports, which everyone can do for free each year.