We get the “why are my credit scores different” question a lot. And for good reason: it can be confusing. You check with Nav and see your scores, but then your lender says your score is different. You get your FICO credit score…and it’s different too.
It usually goes a little like this: “I see my credit scores with Nav and my highest is a 734. But, I applied for a loan and the lender said my score was a 657, a difference of 77 points! I know something is wrong.”
There actually is a good explanation for this. To understand why credit scores can vary, you need to know how they are made, what scores are out there, and who uses which scores.
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Meet the Three Credit Bureaus
Let’s start with a basic understanding of what factors are considered in creating a credit score so that you can then uncover why there are different scores and why scores can be different across major credit bureaus.
First of all, there are three credit bureaus:
Credit reporting agencies (or bureaus) are here to help you. They accumulate and manage all the data points that make up your credit history so that, when you apply for a credit card or loan, lenders have an accurate portrayal of how risky you might be to take on as a customer. Understandably, if your credit score is low because you’ve paid many credit cards late, a credit card company might be hesitant to issue you another card, but if you have outstanding credit, you’ll be a hot commodity.
Most Credit Scores are Based on 5 Factors:
- Payment History (35%)
- Debt Utilization (30%)
- Credit History/Credit Age (15%)
- Credit Inquiries/New Credit Checks (10%)
- Types of Credit (10%)
Payment History: Payment history typically accounts for around 35% of your score and has a substantial impact on a consumer’s credit score. Late payments are the issue here. The more recent the late payment, the more it affects your score and the more late payments there are, the more they affect your credit rating. A recent late payment can drop your score as much as 100 points.
Debt Utilization: Revolving debt is also a substantial factor and accounts for roughly 30% of your overall credit score. It is simply a measurement of the credit balance to your limit ratio. For example, if you have a credit card account with a $5,000 limit and have a $1,000 balance, your balance-to-limit ratio is 1:5 or a 20% revolving debt balance. This is measured both for individual accounts and as an aggregate ratio of all revolving accounts. The higher your ratio is, the more it impacts your credit negatively. The bottom line is: the lower your credit card balances, the better your credit score will be.
Types of Credit: Credit diversity or credit mix is a measure of how mature your credit is in terms of types of accounts. If your credit report shows that you have a few credit cards, a car loan, a student loan, and a mortgage, you will have a higher credit score than someone who only has one credit card and a personal loan. The more diverse your credit is, the better the indication that you are a good credit risk across different credit products. Credit diversity accounts for roughly 15% of your credit score.
Credit History/Credit Age: Credit age simply indicates how long you’ve had credit and is measured by taking the average age of all your credit accounts. The older your credit, the better. This accounts for roughly 10% of your credit score.
Credit Inquiries/New Credit Checks: New credit takes into account newly opened accounts and requests for credit history or inquiries. Each inquiry will typically drop your score a point or two and stay on your credit for two years. The inquiries only affect your score for one year. New credit checks account for roughly 10% of your credit score and are best managed by being careful to apply for credit only when necessary.
FYI: Checking your credit scores with Nav is a soft inquiry and absolutely does not impact your personal or business credit scores.
How are Scores Made?
To understand why scores can differ from bureau to bureau and lender to lender, you need to how they’re made. The three main bureaus are credit data repositories and major credit reporting agencies. That means that they each gather credit data on consumers and businesses from creditors around the nation. Credit card issuers report their data to the bureaus and the bureaus use that information to create credit reports and credit scores in your credit file.
If the three bureaus are getting the same information, then why are credit scores different?
To create a credit report, an inquiry to one of the bureaus is made. Imagine the request causing someone at the credit bureau to go into a giant room with all the billions of pieces of credit data the bureau has at that time and gathering it all together to create a report. It’s a digitized process, but this gives you an idea of how many records each bureau has to manage and update in real time.
While each bureau gets the same information about your credit usage and payment history, including things like your cell phone bill, utilities, car payment, and mortgage payment, they each have their own proprietary system for how they come up with your credit score.
For example, your Transunion credit score might be higher than your Experian one because it might place more importance on your on-time monthly mortgage payment than it does your credit card payment.
Difference Between Credit Scores
Different financial institutions, credit bureaus and other risk-measuring institutions use different credit scoring systems, as you’ve learned. The most well-known credit scoring system is the FICO score, created by the Fair Isaac Company. It is the gold standard in credit scores and has the highest adoption rate among financial institutions.
In addition to the FICO score, each credit bureau has its own proprietary score. The major credit bureaus have also created the VantageScore as a joint venture among Experian, Equifax, and TransUnion to compete with the FICO score.
Additionally, large financial institutions will create their own proprietary scores that are not available to the public. Each score is intended to measure the risk of a borrower based on information in their credit report.
In addition to each score weighing the above factors differently, there are a few other reasons your scores can be different.
Information is different between national credit bureaus. Since credit card companies don’t report information to each bureau, each bureau can have different information. Because credit scoring platforms are based entirely on information in your credit profile, if information is different between bureaus, it will result in a different score. Perhaps you have an American Express card that reports to Equifax but not TransUnion. Your Equifax report will indicate a higher credit balance and higher credit limit than what is reported on TransUnion, resulting in a different credit score.
Timing. Credit scores are created in real-time. When an inquiry occurs, the bureaus check their records and overlay the scoring algorithm to spit out a credit score. Because they are real-time, it is possible for your credit score to change from one minute to the next depending on what is being reported. For example, if you have paid your American Express bill and as a result, your revolving credit balance has dropped significantly, your score will be different on the day before it gets submitted to the bureaus as paid and the day after it has been recorded as paid. In this example, it is possible to see a significant score change depending on how much debt has been paid off.
Credit Score Ranges
Not to further complicate things, but each bureau has its own credit score ranges:
- VantageScore 3.0 and 4.0: 300-850 (781-850 is Excellent)
- FICO Score 8 and 9: 300-850 (800-850 is Excellent)
- Industry-specific FICO Score: 250-900 (800-900 is Excellent)
Each score has differences in how it weighs the importance of the factors described above and the ranges in which a person can score. For example, the FICO score may put more weight on your revolving debt than VantageScore and therefore, your FICO score will be different from your VantageScore.
It’s frustrating because you can have a bad credit score with one bureau and a perfectly good one with another!
Which Credit Report is Best?
There are several tools that provide you access to your free credit report and more. Credit Sesame makes recommendations about how you can build your credit. Credit Karma has add-ons like an automated savings account, car insurance, or resources for buying a home. If you own a business, Nav provides resources to monitor both your personal and business credit.
As you can see, the answer to the question “why are my scores different?” can be complex. The bottom line is that you should make sure the underlying data is the same across credit reports, no matter where you obtain them. Having the right data reported is what is important. That’s why it is critical to monitor and understand the information being reported on your credit.
Make sure you’re taking advantage of checking in on your free credit score and credit report so you know what your report says. Since you can get your credit score for free, there’s no excuse!
Staying on top of it using one of the resources listed in this article can not only help you find discrepancies before they negatively impact your credit rating, but it can also help you improve your credit.
That’s also why we created Nav – we want to help you understand your credit so you can achieve your financial goals.
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