Credit Scores Can Be Different – Top 3 Reasons Why?
Credit scores can be different with different credit bureaus. Statista says that the revenue from credit bureaus is projected to reach 142 billion US dollars by 2024. There is a lot of confusion among consumers about credit scores and how they actually work. A common question that many consumers wonder is why they have 3 different credit scores from the 3 different credit bureaus. This article will answer your question about the differences.
Credit Scores Can Be Different with All 3 Credit Bureaus
The rarely known fact is that the credit scores can be different with credit bureaus. They do not necessarily be the same. There are many assumptions and myths around this fact. Some people assume that loan vendors consolidate all the scores from all three bureaus and make decisions. They also think a credit score is something that is calculated by all three bureaus together. As the credit bureaus have different scoring models and evaluation patterns the resultant credit score may vary.
Before you can fully understand why you usually see 3 different credit scores any time your 3 credit reports are pulled it is first important to take a look at how credit scores are generated
Credit scores are the products or service that is being offered by different companies. Credit bureaus are companies that provide credit reporting services by assessing the creditworthiness of the customers. So the credit scores from each bureau may vary with respect to the scoring model they prefer and the consumer information they collect for evaluation.
Where Do Credit Scores Come From?
Credit reports are created by intricate software programs which are designed to evaluate the information contained in your credit reports and to assign a number (aka score) based on your level of risk. If a piece of information is not featured on your credit report then it cannot be a factor that influences your credit score. For example, your income is not a component of a credit report.
Myths and Truths
- Many people think that these bureaus work together and declare a credit score. That is not true. People must be aware credit scores are just the products of different credit bureaus that may vary.
- The scores of credit bureaus will not be extremely different. Whatever scoring model they follow, the basic criteria of the evaluation are the same. So there may be a slight difference based on the time they calculate or the factors they consider.
3 Reasons Why Credit Scores Can Be Different
Here are some of the reasons that stand a reason for the difference in credit scores. Have a look at them. There are numerous credit reporting companies. Among them, Experian, Equifax, and TransUnion are distinguished as popular and most trustworthy by the public. Most loan vendors take these bureaus into account when deciding whether to approve a loan.
Different Scoring Models
Many consumers are also surprised to learn that they have not 1, not 3, but actually hundreds of different credit scores. There are different credit score brands (i.e. FICO and VantageScore), credit scores created for specific industries (i.e. auto adjusted scores, mortgage-adjusted scores, general scores, consumer scores, etc.), and different generations (i.e. 1.0, 2.0, 3.0, etc.) of all of these scoring models as well. The result as mentioned is hundreds of different credit scoring possibilities.
In order to compare your 3 credit scores more accurately, you should be sure that the scores are (a) pulled at the same time and (b) that all 3 scores are pulled using the same credit scoring model. If a mortgage lender pulls your credit reports then all 3 scores will probably be pulled simultaneously and under the same credit scoring model (most likely a FICO scoring model). However, if you personally check your credit reports and scores at 3 different websites with even a few days in between each credit pull then the scores you receive could be all over the place. The credit scores can be different with each credit bureau based on these differnce in scoring models.
Another common misconception which consumers have is the idea that credit bureaus work together. Yet the 3 major credit bureaus are actually competitors within the same industry. The bureaus compete with one another for business and each bureau likes to advertise the superior accuracy of its credit report data over the others.
Unsurprisingly, as competitors, the bureaus do not share information with one another. Therefore your 3 credit reports, although very similar, will usually have at least some differences. If the information on your 3 credit reports is different, your 3 credit scores will most likely be different as well.
Credit Reporting Is Voluntary
Another fact about credit reporting which is important to understand is that the process is completely voluntary. No creditor or lender is ever legally required to report information about you or your payment habits to the credit bureaus. Most creditors, especially the major banks, do indeed choose to report account management information to all 3 credit bureaus. Yet some creditors will only subscribe to report data to 1 credit bureau instead of all 3 of them. This imbalance in credit reporting is yet another potential reason why your 3 scores could be different.
It’s All About Timing
Even if your creditors do report your account management history to all 3 credit bureaus it is important to understand that all 3 of your credit reports will still not be reported and updated simultaneously. Your credit card from QRS Bank might, for example, report payment history to Equifax on the 1st of the month, report to TransUnion on the 10th of the month, and report to Experian on the 20th of the month. As a result, one credit bureau may have more up-to-date information than the next bureau – another factor that could certainly lead to a difference in your 3 credit scores.
Frequently Asked Questions
1. Do all three credit bureaus return the same credit score for an account?
No. The credit scores may vary with the bureaus. Though all the bureaus are calculating the creditworthiness of the same person, their way of calculation and other methodologies may vary. This may or may not definitely bring a slight difference between the scores of different bureaus.
2. What are the three major credit bureaus?
There are many credit reporting agencies. Among them, Experian, Equifax and TransUnion stand unique. Most of the loan vendors consider these bureaus to decide on loan approvals.
3. What is the popular scoring model?
The FICO scoring model is the widely considered model to evaluate the scores. The Vange model is also quite popular among others. Still FICO scoring model is undergoing multiple versioning and the latest is the FICO version 9.
This article would have wiped away the doubts about the working of credit scores. Being a credit consumer, you must understand that credit score calculation is just the service provided by different companies. You do not have to run behind them and take an effort to fulfill the criteria of each bureau. All you have to do is just make sure to prioritize your loan needs and ensure a timely repayment. For more information, call us at 1-800 411-3050