Understanding Credit Score Differences

Understanding Credit Score Differences

There are few numbers in life that matter as much to your financial outlook and well-being as your credit score. However, confusion is the norm for consumers when it comes to this important financial gauge.

The History of Credit Scores

Prior to the creation of standardized credit scores, lenders and loan officers would often develop their own "score card" to assess the risk of lending to a particular borrower. This score card could vary drastically from one lender to the next. The major issue with this original method was that it was based on a loan officer's ability to judge risk, rather than a common set of rules and specific calculations.

So, in the 1980's, the Fair Isaac Corporation set up the first general purpose credit scoring system based on credit bureau information in order to help remove the inherent inconsistencies that arose from having each lender perform their own credit diagnostics. It has since become known as the FICO score and the algorithm has been widely adopted by America's largest credit reporting agencies.

Why would my score differ between credit agencies?

The three major credit bureaus are Equifax, Experian and TransUnion. Simply put, the reason that the scores you receive may differ is that each score is dependent on the credit report that each receives and the scoring model they use.

In other words, Equifax might have not exactly the same information on you as Experian and vice versa. One credit bureau may be missing an account that either helps or hinders your score and will therefore report a different credit score than another credit bureau. If the system was perfect, this wouldn't happen. But since it isn't, you want to make sure that they all have the proper information by checking your freeTransUnion and Equifax credit reports on Credit Karma and your Experian on www.AnnualCreditReport.com.

Why would my score differ between the same credit agency?

Credit bureaus use many different scoring models, even within the same credit bureau. Each bureau can use dozens of different credit score models based on the requirements of different lenders.

Each credit score model has a slightly different formula that takes into account some of the over 200 different factors of your credit report; like a thumbprint, no credit score model is exactly the same. In addition, credit scores can change anytime so you have to make sure you are comparing credit scores from the same day.

As an example, a mortgage company will get a different score than a company providing auto loans, since they are looking for different types of credit history and credit factors.

Other Available Scores

While FICO is the most famous, there are several other versions and providers of credit scores, such as VantageScore, NextGen, BEACON and EMPIRICA. Some scores are directly developed by credit bureaus, while others are developed by outside companies.

Is there a "best score"?

In a word, no. In order to protect revenues, credit reporting agencies will often position their scores as the best or the most predictive. In reality, all scores must adhere to similar guidelines to be truly predictive, regardless of the final output number. All credit scores are built from the same base set of data and statistical procedures.

Like many products and services in the marketplace, there are a plethora of different options for you (and the businesses that serve you) to choose from, simply because every buyer is different. Based on cost and effectiveness in each buying situation, there are credit scores for sale to satisfy each customer.

Score Ranges

Just as a point of reference, it may be important for you to know what the score ranges are for each of the major scoring systems. The higher your score the better, as it is a general gauge of your overall creditworthiness in the eyes of lenders.

  • FICO Score: 300 -850
  • Score from Experian: 330-830
  • Score from Equifax: 300-850
  • Score from TransUnion: 300-850
  • VantageScore 3.0: 300-850

Bottom Line

Because there are hundreds of credit scores that measure many different probabilities, consumers generally do not need to be overly concerned with the type of score or even their number. It's also important to note that your credit score is a variable which can change every time your credit report changes. For these reasons, monitoring changes within a single score over time can be a better way to gauge your overall credit health.

These complicated facets of credit scores are exactly why we developed Credit Karma. By keeping the bureau and credit scoring model consistent, we are hoping to provide consumers with a single, easier-to-follow point of reference on their credit health. Best of all, it's always free to check your credit score with us. In this way, you can access your score as often as you want and always have a consistent baseline to better understand how your score is changing.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

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I got an auto loan a few months ago and the credit union did not even look at my transunion or equifax credit scores even though I showed them. They looked at experian instead which did not have a score registered. Of course I am being charged a higher interest rate.

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I would urge all folks (particularly fellow senior citizens) who have no debt, no late payments, and MINIMAL credit card usage (something that Trans Union seriously downgrades you for) to take a long hard look at what that does to your AUTO INSURANCE RATES!!  In our case, we flipped the policy over into my spouse's name and instantly saved $235 per year.  Then, when you learn that you, too, are getting shafted, start raising hell!  Let's see if we can de-throne Trans Union!

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It happened to me, as well.  On the very same day that CreditKarma showed my mortgage to be paid off in full, my Vantage score dropped 47 points!  It came as a total shock to me, because I wrongly assumed paying off that major debt would somehow improve my score, not worsen it.  Go figure :)

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