Credit score Q&A: “Why credit scores are different?”
In case you didn’t know, there are three 3 major credit bureaus, including Equifax, Experian, and TransUnion.
And if you order a credit report that gives you all three credit scores (which is recommended), they most likely will not match.
They actually could be quite different.
For example, you may see something such as the following:
So you may be wondering why there are three credit scores, and why the credit scores differ.
Put simply, there are 3 major credit bureaus that keep track of our credit history. The three main credit bureaus are Equifax, Experian, and TransUnion.
These three companies collect and compile data about us and use it to issue credit scores, based on either the Fico score or VantageScore algorithm, though the former is much more common.
Because we’re talking about three entirely distinct companies, your credit scores will always be different. This is the case for a number of reasons.
Well, these three private companies dominate the credit scoring realm, and are utilized by various banks and lenders to determine your creditworthiness.
However, some banks and creditors may only order credit scores from Equifax, while others only rely on scores from TransUnion. After all, it’s cheaper to order one credit score than all three.
In fact, many auto leasing companies only use one of the three major credit bureaus, but you won’t know which one they use until your credit score has been pulled. So you need to know where you stand with all three!
Others may take the mid-score of all three, a common practice employed by mortgage lenders to get a better overall view of your credit history. Mortgage lenders want to see everything, as they have more at stake than most other creditors, considering the size of the loan they’re extending.
Again, all three of your credit scores must be ship shape because the mid-score takes all of them into account.
That’s why it’s important to know all 3 credit scores because you credit score could be considered good with one bureau and just average with another, based on this unique reporting.
For that reason, all your credit scores carry equal weight, and should be monitored evenly.
It’s really not uncommon to see a large range of credit scores between your three scores, so you could have a 730 score with Equifax, a 710 with Experian, and a 690 with TransUnion.
And that credit score spread could cost you, either by bumping up your interest rate or preventing you from obtaining credit altogether.
For example, TransUnion may know about a recent late payment, while Experian and Equifax could be in the dark. The opposite can also be true, with one of the three bureaus missing a positive piece of credit history, thereby suppressing your credit score.
So knowing only one credit score won’t do you much good, especially if the bank or creditor pulls your credit using one of the other two.
Credit Scores are Different for Three Main Reasons
As you can see from the illustration above, these 3 credit scores are anywhere from 20 to 40 points apart. While this can be the case sometimes, there are many scenarios when you may see a spread of 50-100 points or more between credit scores.
So imagine a borrower that has a 750 credit score with Equifax, a 680 credit score with Experian, and a 700 credit score with TransUnion. If the lender relies on the mid-score, they will really only consider the 700 score when determining whether or not to lend to you.
That could mean a higher interest rate or even failure to qualify, so be sure to keep tabs on all 3 credit scores to avoid any unwelcome surprises!
Of course, there is the possibility that all 3 of your credit scores will show very little divergence as well, but you won’t want to leave that up to chance.
Now about those differences…
First, the credit bureaus mentioned above receive data from your creditors at different times of the month.
As a result, depending on what day you order a credit report, new data may only be recognized by one or two of the bureaus, not all three.
So a recent collection or charge-off may only show up at TransUnion and Equifax, weighing those scores down while the credit score at Experian remains elevated, that is, until the derogatory event is eventually reported there as well.
Secondly, not all creditors report all their data to the three credit bureaus – they may just send it to one or two. So some positive or negative data may never make its way to one or two of the credit bureaus, making that credit score slightly different than the others.
Additionally, credit inquiries may only register with one of the credit bureaus, as opposed to all three, because some lenders only use one bureau for their credit check.
And finally, the credit bureaus define consumer tradelines differently, meaning a charge card could be seen as a revolving credit card, and so forth.
As a result, credit scores may vary slightly, even if the same data is reported. Remember, they are different companies, so data will be interpreted and delivered differently.
This explains why there is so much variation in your Fico score from bureau to bureau, which is why newcomer VantageScore is working to better align the data.
Most creditors rely on Fico score for their credit scores, but VantageScore is beginning to grab market share slowly but surely.
As you can see, knowing all three is much more important than knowing just one of your credit scores.
Unless you have all three, you simply aren’t getting the complete picture, and could be missing something significant!