There are three major credit reporting bureaus in the United States: TransUnion™, Equifax™, and Experian™. Each one has its own unique mathematical method of calculating a credit score for the consumer. And each bureau may have slightly different information on how they calculate credit scores that can seem confusing. So, why are the scores different from one to another? For some people, credit scores may vary by as much as 40 points between the three credit reporting agencies. When you apply for a loan or credit card, your credit score is a key factor in getting approved and will influence the type of interest rate and lines of credit you qualify for. The lower your credit score is, the more likely you are to receive a higher interest rate. In fact, you may end up with less credit line or no approval at all.
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There are three key reasons your scores may be different from one credit bureau to another.
Credit scores can vary because of differences in the credit scoring algorithms that each reporting agency uses. There are many distinct credit scoring formulas used by creditors, lenders, and insurers to evaluate your creditworthiness. These scores will evaluate your credit report differently to match the specific characteristics of the entity that is using your report. The most common credit score models that consumers are exposed to are Vantage and FICO.
For the most part, your credit report is a simple collection of data sent to the credit bureaus from your creditors. That means if you tell your auto lender that you have a new address, they could report that new address to the credit bureaus. If your payment is late, that will be reported. The cycle is ongoing. Also, creditors report your account information to the credit bureaus in different ways and at different times throughout the month. As a result, one credit bureau may know you paid your home loan late but another bureau may not have processed or received the data yet. The result can be vastly different credit scores until the data is updated at both credit bureaus.
Let’s say you are car shopping over a 30-day period. When you set out on your mission, let’s say 710 was your credit score. Ten days later, you go shopping someplace else, and it’s 715. Twenty-five days later, you make your last stop and somehow it's dropped to 605. Well, the reason is that each report, ordered and accessed on the same day, may contain the same accounts, but could be missing information. Think of them as living records that are never perfectly in sync.
Different scores and mismatched reports can often feel like acting on your credit is a moving target. But as long as you remain aware of the effect, timing and reporting and the multitude of other factors that go into calculations can have, you’ll already be working with more information than the average American. Monitoring and managing your credit will give you a powerful advantage when deciding how and when to leverage your score for a new line of credit.
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