As a credit financial specialist, one of the most frequent questions I get about credit reports is: “Why do I have three credit scores and why are they different?” The honest answer (that no one really appreciates) is that you actually have MORE THAN three scores! There are a lot of different factors that play into determining your score, but here are the three biggest reasons as to why they vary so much:
- The three credit bureaus – Experian, Equifax, and TransUnion – work completely independently of each other and are in competition with one another. Your mortgage company may sell your payment data to Equifax but not TransUnion. So TransUnion may not know that you have that big line of credit and that you missed a couple payments last year when you were out on medical leave.
- Your information may not get distributed at the same time of the month to each bureau. For example, let’s say you had a maxed out credit card with a $1000 balance, but you paid it in full on the 1st of July. The credit card company reports their information to Experian on the 5th of the month (meaning they know you’ve paid it in full), but they report to Equifax on the 25th (so they still think it has a balance). Since balance-to-limit ratio matters (see Sarah Gant’s post from last week), your Experian score should be slightly higher than Equifax.
- They use different scoring methods. All the information from your report – what credit lines you have open, how long they’ve been open, missed payments, etc – all get run through a huge equation that sifts and weighs the information. Some scoring models care greatly about collections while some completely discard collections under a certain amount. You’ve likely heard about the FICO scoring method, but there’s also Beacon, Vantage, NextGen, and Empirica. Each of those are just different “equations” or ways of distilling your credit history into a single number. And there are other types of equations, too, that can be weighted toward home purchase, car purchases, or even for insurance rates. Each of these scoring methods prioritize different information and therefore give different scores.
There are a lot of online tools for estimating your score or that provide free scores. It’s helpful to keep in mind that these free services are great for getting an idea of your score and therefore what you might need to work on. But they are just one scoring method so don’t be surprised if the bank you are trying to get a mortgage with says that your score is a few points (or maybe several points) higher or lower.
If you have questions about your report or scores, or just want to understand what you can do to improve your score, we would be glad to help. Apprisen offers many services including a Credit Health Education session which includes reviewing all three of your credit reports and scores. If you are concerned about your credit for the purposes of homeownership, we also offer education for home buyers to better understand the process and preparation needed to take that big step. We are happy to partner with you along the way to better finances!