Why credit scores differ between credit-reporting agencies

Woman wonders why credit scores differ between different agenciesImage: Woman wonders why credit scores differ between different agencies

In a Nutshell

FICO® credit scores are just the tip of the iceberg. Lenders also use dozens of other credit scoring models when you apply for a credit card, mortgage or auto loan.
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There are few numbers in life that matter as much to your financial well-being as your credit scores.

Whether you’re applying for a credit card or buying a home, these three-digit numbers can go a long way in determining whether a lender will do business with you.

The problem is, there are so many credit scoring models out there. How can you keep track of them all?

And what should you do if your scores differ between credit-reporting agencies (also known as credit bureaus)?

First things first: It’s perfectly normal for scores to differ slightly between agencies. It’s up to lenders to decide which information they report to the major credit agencies — and which agencies they report to in the first place. Since your FICO Scores depend on the data listed on your credit reports, you might not see the exact same score from every credit-reporting agency. Of course, there may be other reasons for any discrepancies in your scores; more on that later.

The good news? Many agencies look at similar factors when calculating your credit scores. So long as you make payments on time, keep your credit card balances low and don’t go wild opening new credit card accounts when you don’t need them, you should be in good all-around shape.

Here at Credit Karma, we want to help you develop the healthy financial habits that credit-reporting agencies look for when they crunch your credit scores.

So, listen up (and note that the following discussion only relates to credit in the U.S.).

Let’s start with your FICO credit scores

In the old days, banks and other lenders developed their own “score cards” to assess the risk of lending to a particular person. But the scores could vary drastically from one lender to the next, based on an individual loan officer’s ability to judge risk.

To solve this issue, the Fair Isaac Corporation (formerly Fair, Isaac, and Company) introduced the first general-purpose credit score in 1989. Known as the FICO Score, it filters through information in your credit reports to calculate your score.

Since then, the company has expanded to offer 28 unique scores that are optimized for various credit card, mortgage and auto lending decisions.

OK, but what about my other credit scores?

FICO Scores are just the tip of the iceberg. You may have dozens of other credit scores you’re not aware of.

The other main scoring model you’ll run into is the VantageScore. The three major credit-reporting agencies — Equifax®, Experian® and TransUnion® — teamed up in 2006 to create the independently managed firm VantageScore Solutions, which just released the fourth and latest version of its credit scoring model, the VantageScore 4.0. (The previous version, VantageScore 3.0, is still widely used.)

We know this is a lot to take in, but don’t panic. While each of these credit-reporting agencies calculates your credit scores differently, they all focus on how responsible you are with the money you borrow.

Why are my credit scores different?

There are a few reasons why you might get different credit scores from FICO and each of the three major credit-reporting agencies. Here are some of the most common situations:

  1. Scores are from different dates. Since your scores might change at any time, it’s important to compare credit scores from the same date.
  2. Scores are calculated using different scoring models. Keep in mind, there are dozens of credit scoring models out there that may calculate your score a little differently.
  3. Scores are calculated using different credit reports. Some lenders report to all three major credit agencies, but others report to only one or two. This means a credit agency may be missing information that helps or hurts your score.

We recommend you periodically check your credit reports for errors, which could affect your scores. You can check your Equifax® and TransUnion® credit reports for free on Credit Karma, and your Experian® report on www.AnnualCreditReport.com.

Why do my FICO credit scores differ?

Credit scores are like thumbprints: No two scoring models are the same.

Like we mentioned before, FICO periodically updates its credit scoring models so there are multiple FICO Score versions. They feature unique formulas that cater to, say, credit card issuers, mortgage lenders or car salesmen, each placing importance on different factors.

If you’ve had a car repossessed or missed a payment on an auto loan, for example, your FICO Auto Score may put extra weight on those factors. Note that your base FICO Score will likely also account for a missed car payment, but it may be weighted differently.

Though your scores may vary, they’re all based on the information provided by the credit-reporting agencies. So, focusing on what’s in your credit reports could help you build your credit across the board.

Credit score ranges

Think of your credit scores as a report card that gauges your creditworthiness. The most common scores range from 300 points to 850 points. The higher your score, the better.

In the case of FICO Scores, if you consistently score above 800, it’s like getting straight A’s. The national average FICO credit score, a “C” if you will, is 695.

What’s the best credit score?

There’s really no such thing as a “best” or “worst” credit score — they’re just different, and different lenders may use different credit scores. With that said, FICO Scores are used in over 90 percent of U.S. lending decisions, so your FICO Scores may have more sway over your financial life.

On the other end of the spectrum, some credit scores are meant only for educational purposes and are rarely, if ever, used by lenders when making credit decisions.

What’s next?

It can be difficult to keep track of all your credit scores, because there are so many out there, and each score changes over time.

These complicated facets of credit scores are exactly why we developed Credit Karma. We hope to provide you with an easy-to-follow point of reference on your credit health.

Best of all, it’s always free to check your VantageScore 3.0 credit scores and credit reports from two major credit-reporting agencies with us. What’s more, checking your credit scores and reports on Credit Karma will never hurt them.

About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.