Credit 101: Credit Score Differences

April 14, 2011

One of the biggest misconceptions about credit is that there is one correct credit score. In fact, there are dozens of credit score models.

Not only does each credit bureau report a different credit score model, but even within the same bureau several credit score models exist.

With so many credit score models out there, the score that your mortgage lender uses could differ from that which your credit card issuer and your auto loan provider uses. They are all using different credit score models to assess different factors of your creditworthiness.

A little history:

Before the development of standardized credit scores, lenders and creditors would create their own “score card” to assess the risk of lending to a particular consumer. The score card was based an individual’s credit report and could vary from lender to lender. This put more responsibility on the lender to assess risk, rather than to base risk on a standardized set of calculations.

In the 70’s, the Fair Isaacs Company set up the first standardized credit scoring system to address these inconsistencies, called the FICO score. Credit bureaus have since adopted their own credit scoring algorithms.

The credit bureaus aggregate your credit information, such as your different credit accounts, debts, and bill paying habits, from creditors and financial institutions, and track it all on your credit report. The three major credit bureaus are Equifax, Experian, and TransUnion, and each bureau developed its own proprietary credit score model. Although credit scoring algorithms generally measure the same factors, each credit score model weighs those factors differently and there are variations in your credit report from bureau to bureau, thus your credit score will vary in a few points from bureau to bureau.

In reality, all scores follow certain standardized guide lines and credit factors. They’re all developed from the data of your credit history, so no one score is necessarily better or more accurate than the next.

We believe free access to one’s credit score is a fundamental consumer right and regular monitoring is the first step toward taking control of your financial profile.