Why Do We Have Multiple Credit Scores and Does This Matter?

May 04, 2018

Young woman checking her credit score on phone and laptopAs your credit score is a major factor impacting your financial well-being, it can be vexing to hear that you have different credit scores depending on the lender or creditor you are using, and the purpose of the inquiry into your score. Not only does your credit score affect whether you may qualify for a certain loan or line of credit, but it also affects financial transactions such as renting an apartment or establishing a utility account in your name. Moreover, your credit score is used to determine the interest rate and/or terms that you’re eligible to receive on a loan. Of course, paying higher interest rates or accepting less favorable terms means having to pay extra money that could be used for other purposes.  

Are you interested in learning why your credit score varies? Here’s an explanation to clear up some of the mystery, along with insight into the reasons why this is generally no cause for alarm:

Credit bureaus collect different data: The three major credit bureaus, Experian, Equifax and TransUnion, all acquire their data separately from one another, and generally, this information is not shared between them. What’s more, lenders and creditors don’t necessarily report their data to all three of these bureaus; they decide what information they report, and to which agencies. In some cases, they may only report to only two of the three bureaus, or even just one. This means that the three agencies will use slightly different data from which to calculate your credit scores. As an example, a missed payment to a credit card account might be reported to Experian or Equifax, but not TransUnion. In this case, only Experian or Equifax would calculate the delinquency into their score for you.

 Scoring models are unique: Between credit bureaus, credit scoring companies and lenders, there are a multitude of methods that can be used to compute your credit score. First of all, the three major credit bureaus themselves all have their own models. In 2006, they also collaborated to develop an algorithm for what is known as your VantageScore. Often used by landlords, lenders and credit card issuers, the VantageScore was created to compete against the FICO score. When the company originally known as Fair, Isaac and Company first introduced the FICO score in 1989, it was the first general-purpose credit score. However, FICO itself now uses dozens of unique score formulas to keep up with different behavioral trends of consumers and enable lenders to make more informed decisions. In addition to their most widely used FICO® Score 8, the company assesses dozens of scores that can vary according to the type of loan and industry.  For example, FICO has different models for auto lenders, mortgage lenders and insurance providers that will weigh various factors slightly differently. As Credit Karma has explained, a scoring method for an auto lender may measure missed car payments or car repossession more heavily against your score than another model might.

Scores may change quickly: It’s important to keep in mind that credit scores are fluid. Actions such as running up a high balance on a credit card, missing a payment or suddenly applying for multiple credit cards can quickly impact your score (and not in a good way). In addition, credit scoring companies adjust their models from time to time to release their newest versions.

Will lenders disclose which credit bureaus they use to determine your credit score? They may tell you if you ask, but as The Balance points out, you generally can’t request that they pull your report from a specific credit bureau to obtain your score.

So why review your credit score at all? Although a credit score you can access yourself isn’t likely to be exactly the same as the one a lender may obtain on you for a given purpose, it can give you a reasonably good idea of your overall credit position. It’s important to keep in mind that although scoring models vary, they are all predicated on how reliable you have proven to be in terms of repaying money that you owe. Once you have an overall picture of how lenders perceive you in terms of your credit worthiness (i.e., their level of risk in doing business with you), you will be better equipped to take action to improve your credit standing. And just this week, SF Police Credit Union has introduced a new feature in online banking to support you in this effort! With our new FICO® Score Display, free to eligible members enrolled in Online Banking, you can instantly view your base FICO score, ,plus get access to a wealth of information to help you interpret your score, understand key factors that have affected it, and learn specific ways that you can boost it. If you haven’t already, get started today by logging in to Online Banking and click on Account Services > See My FICO® Score

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APR = "Annual Percentage Rate". Actual APR is based on your credit profile and may be higher than the lowest rate available. Posted rates may include promotional discounts and other terms and conditions. APY = "Annual Percentage Yield". Rates are subject to change without notice.

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