Why Are My Credit Scores Different?
You might be surprised by the result when you check your credit score. Your score could be very different from what you expect based on previous credit scores. There could be many reasons for a difference in score, including the scoring model used and the credit bureau providing the information.
When you are applying for a loan, your credit score becomes very important. But why are your credit scores different when you check?
What Are Credit Scores?
Lenders use credit scores to check that they aren’t lending money to people who are a greater risk. They don’t want to lose money on people not fulfilling the terms of their contract, and credit scores help their assessment.
Credit scores are created using the information in your credit report, but the model used could result in different numbers. There are dozens of credit scoring models that could be used to judge your creditworthiness with different results.
FICO and VantageScore are the most commonly used systems for consumer credit scoring models. If you are applying for a credit card, a mortgage, or other types of lending, your score will likely be created using either FICO or VantageScore systems.
Your lender might also get their data from different sources, and these could be the three national credit bureaus; Equifax, Experian, and TransUnion.
Your credit score will be a three-digit number normally between 300 and 850, with the higher number being better. Lenders use this number as a quick way of determining their potential risk if they lend to you. The higher your number, the better the options you will have, which could include lower interest rates on your loan.
Even with information from these credit bureaus, lenders might also use their own credit calculations to decide whether to lend to you or not. Sometimes your credit report will be used by third-party companies to provide proprietary scoring models to your lender.
Your credit score will be made up of information from the following categories:
Missing payments will hurt your score
The amount of credit you use
Age of Credit Accounts
Older accounts are better
Hard inquiries on your credit report when opening new accounts
Different types of credit accounts you have
If you can better manage these categories, your score will improve.
Why Are My Credit Scores Different?
There are a few reasons why you might find your scores don’t match up between credit bureaus:
1. Different Scoring Models
The different ways of calculating your credit score will lead to different results most of the time. Perhaps one model places more weight on your payment history over another, changing the result. Even if you checked your FICO and VantageScore credit scores at the same time and with the same bureau, you would likely find they gave different results.
2. Using Different Credit Reports
Not everything will be reported to the three main credit bureaus. Sometimes a lender will only report to one or two of them, potentially changing the score because of this difference in information.
When a lender assesses your credit application, they will pull credit reports, but they might not check all three of the major bureaus. If they only check one of your credit reports, this hard inquiry will only make a difference to your credit score with that bureau.
Your credit report will change all the time, so unless you get the scores at the same time, this can be another reason for a difference.
Typically, a lender might only update information with the bureau once a month. If you miss a payment at the start of the month, this might only affect your score weeks later, instead of immediately as you might expect.
Data isn’t necessarily passed on to the credit bureau at the same time either. Different lenders can update bureaus with client information at different dates within the month, further leading to differences in your score.
Any difference in scores can be more affected when something negative has happened to your credit. If you miss a payment, it will lower your score by quite a lot.
Payment history can make up 35% of your score, the single biggest factor. When this contributes to your score from one bureau, you can expect a large difference from the others if it hasn’t yet been included in their reports.
What Are FICO Scores?
In the past, lenders would create a scorecard system to help them judge how much of a risk a borrower represented. These systems were often very different between lenders and put a lot of the decision-making on individual loan officers.
Fair, Issac, and Company created their FICO Score system in 1989, calculating risk based on credit reports. While it started as a general scoring system, they now optimize for different types of lending.
For example, if you are applying for an auto loan, having a car repossessed in your history will factor more in the score. While a car repossession will also affect your general FICO Score, it will be less of a factor in deciding your score.
Will Checking My Credit Report Affect the Score?
While hard inquiries from lenders on your report will negatively change the score temporarily, this isn’t the case when you check your own report.
Hard inquiries don’t necessarily have too much of an effect either. And if you are shopping around for credit, typically only the first hard inquiry will count against your score. This allows you to compare different lenders without being penalized. However, if you keep having hard inquiries months apart it can certainly have a negative impact on your score.
Improving Your Credit Score
If your credit score with one or more of the bureaus isn’t as good as you want, there are things you can do. Before you apply for credit, particularly if it is a mortgage, you should do everything you can to improve your credit score.
Having a better credit score could give you a better interest rate on your loan, among other positives. If you can show you are a responsible borrower, your credit score will improve.
Being careful with credit applications, maintaining low balances on your cards, and paying bills on time, are important to show you are responsible to a lender.
Paying your debts on time is a large factor in your score. If you haven’t got a good recent payment history, for whatever reason, you need to build one up to increase your credit score. This might mean delaying your mortgage application, but it could mean a difference of many thousands of dollars in interest payments.
Understanding your credit score and keeping track of it is important especially if you’re obtaining a mortgage to buy a home. Believe it or not, mistakes can be made and you may find incorrect information in your report. So it’s wise to check your credit once a year to ensure it’s accurate regardless if you plan on obtaining a loan or not. There are several places online to obtain your personal or business credit scores.
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About the Author
Top Wellington Realtor, Michelle Gibson, wrote: “Why Are My Credit Scores Different? 3 Important Reasons”
Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.