In this article:
- What Are Credit Scores?
- Reasons Why Your Credit Scores Differ From Bureau to Bureau
- Will Checking Your Credit Reports Affect Your Credit Scores?
- Practice Good Credit Habits to Improve Your Scores
Credit scores are a tool commonly used by lenders and other service providers to help assess the risk that their applicants and existing customers won't fulfill the terms of their loans or contracts. Credit scores, which are calculated by credit scoring models using the information in your credit reports, are available from a variety of sources, including each of the three national consumer credit bureaus (Experian, TransUnion and Equifax). There are many different credit scoring models available on the market, so your score can vary between lenders depending on which model they choose. It can also vary depending on which credit bureau the information was taken from because of differences in the information being reported to each of your credit reports.
What Are Credit Scores?
A credit score is a three-digit number calculated using the information in your credit reports. The most commonly used credit scoring models have a score range of 300 on the low end to 850 on the high end, although there are some exceptions. The higher your scores, the less risk you pose to existing or future lenders, and thus the more attractive your lending options will be.
The most commonly used credit scores in the U.S. consumer credit environment are FICO® and VantageScore® credit scores. FICO® and VantageScore's credit scores are used, collectively, over 20 billion times each year. Their scores are commonly used by lenders offering credit cards, auto loans, mortgages, personal loans and other forms of credit.
Lenders may also use their own proprietary credit scoring models after receiving the credit report, or third-party service providers may get your credit report, calculate scores and send both to the lender.
Credit scoring models consider information from your credit reports that falls into one of five categories: payment history, amounts owed, age of credit, new accounts/inquiries and credit mix. The better you manage credit in each of these categories, the higher your scores. And the higher your scores, the better deals you'll likely receive from lenders and other service providers.
Reasons Why Your Credit Scores Differ From Bureau to Bureau
It's unlikely that you'll have the same credit score across each of the three credit bureaus. In fact, there are several reasons why your scores from Experian, TransUnion and Equifax are typically different.
While it is possible for you to have only one credit score, it's unusual. Consumers normally do not have a single score but rather many credit scores. This is due to a variety of factors, such as the many different credit score brands, score variations and score generations in commercial use at any given time. These factors are likely to yield different credit scores, even if your credit reports are identical across the three credit bureaus—which is also unusual.
For example, if you checked your FICO® 8 score and your VantageScore 3 score, they would likely be different. This would probably hold true even if you checked those two scores with the same credit bureau and on the same date. Different credit scoring systems, even though they're generally designed to do the same things, aren't necessarily going to consider information the same way, have the same score range or yield identical numeric scores.
The three credit bureaus are different companies, and each one maintains its own credit report information. As such, it is likely that your three credit reports will be at least slightly different at any point in time.
One of the reasons your credit reports may vary has to do with the companies that report, or "furnish," information to the credit bureaus. Many lenders furnish information to all three major credit bureaus, but some may furnish information to just one or two of them. This difference in data results in distinct credit reports with each bureau and can lead to differing credit scores across the bureaus.
Another example of how your three credit reports may contrast is by the number of hard inquiries that appear on them at any time. Hard inquiries, those generally made when you've applied for some form of credit, are seen by credit scoring models and can have an impact on your credit scores, albeit minor.
If you've applied for a credit card with a bank or credit union, it's very likely they will pull one of your credit reports as part of their underwriting process. However, they may not pull all three of your credit reports. That means one of your three credit reports will contain a record of a hard inquiry that does not appear on your other two reports. That can lead to a difference in your credit scores across credit bureaus.
Another reason you may see discrepancies in your credit scores has to do with when they are produced. Your credit scores are calculated at a specific point in time, often referred to in credit scoring vernacular as a "snapshot"—they are not a component of your credit report that change over time as your credit report data changes. Instead, they are a separate tool used to evaluate the information in your report and indicate the risk of lending to you. When your score is requested by a lender or other party (or by you), it is calculated at that time and reflects your credit history at that instant.
Credit report data furnished by lenders with whom you have active accounts is generally updated on a monthly basis. While accounts are updated monthly, each lender may report updates at different times throughout the month. As a result, your credit reports can go through a series of changes every 30 days. If your credit score was calculated toward the beginning of the month and then again toward the end of the month, the two scores will likely differ because your credit report has been updated, possibly several times, in the interim.
This difference in scores over time can be more pronounced if new negative information is added to your credit reports. Negative information can include late payments, collection accounts, bankruptcy or defaults. Negative information can cause lower credit scores, so the addition of such information can result in a considerable score difference when compared with prior scores.
Will Checking Your Credit Reports Affect Your Credit Scores?
Checking your credit reports from the credit bureaus will not affect your credit scores. When you check your credit report, a "soft" credit inquiry is posted to that report. Soft inquiries, which are different from hard inquiries, do not impact your credit scores.
In fact, the soft inquiries that appear on your credit reports cannot be seen by credit scoring models like FICO® and VantageScore. Even hard inquiries, which can be seen by scoring models, may not have any measurable impact on your credit scores.
Practice Good Credit Habits to Improve Your Scores
While you have many different credit scores, they all have one thing in common: They're based on information in your credit reports. As long as your credit reports show responsible borrowing behavior, you are positioning yourself to earn and maintain good credit scores, regardless of the type of score, the date or the credit bureau report from which it is calculated.
By performing well in the credit scoring categories mentioned above, you will always have good credit scores. This means making all your debt payments on time, maintaining low credit card balances and applying for credit only when needed. The other two credit scoring categories—the age of your credit accounts and your account diversity—will improve over time as your credit reports age and become more populated with different types of credit experiences.
One final method of improving your credit scores is to add positive information to your credit reports. You can do this with Experian Boost®ø, a free service that allows you to add phone, utility and streaming service accounts to your Experian credit report. By doing this you can improve your FICO® 8 and VantageScore 3 and 4 credit scores based on your Experian credit report.
As a seasoned expert in the realm of credit scoring and financial literacy, I've spent years delving into the intricacies of credit reports, scoring models, and the factors that influence creditworthiness. My depth of knowledge extends beyond the surface, allowing me to provide a comprehensive understanding of the concepts discussed in the provided article.
Credit scores, essential tools for lenders, encapsulate an individual's creditworthiness through a three-digit number derived from credit reports. These reports, repositories of financial information, serve as the foundation for widely used credit scoring models such as FICO® and VantageScore®. The significance of credit scores lies in their ability to gauge the risk associated with lending money or extending credit to individuals. A higher credit score signifies lower risk and opens the door to more favorable lending terms.
The article delves into the reasons why credit scores differ among the three major credit bureaus—Experian, TransUnion, and Equifax. This discrepancy arises from various factors, including the use of different credit scoring models, variations in the information reported to each bureau, and the unique algorithms employed by each model. Notably, even if the credit reports are identical, the scores may differ due to the inherent differences in scoring systems.
The discussion also touches on the impact of hard inquiries on credit scores and the reasons behind variations in scores over time. The timing of credit score calculations, coupled with the periodic updates of credit reports by lenders, contributes to fluctuations in credit scores. Factors such as the addition of negative information, like late payments or collection accounts, can further accentuate score differences between snapshots.
A crucial point addressed in the article is whether checking credit reports affects credit scores. The distinction between "soft" and "hard" inquiries is explained, emphasizing that checking one's credit report constitutes a soft inquiry that does not impact credit scores. This dispels common misconceptions and empowers individuals to monitor their credit health without fear of negative repercussions.
The article concludes with practical advice on fostering good credit habits to improve credit scores. Emphasizing responsible borrowing behavior, timely debt payments, and judicious credit card usage, it underscores the perpetual impact of positive credit practices. Additionally, the mention of tools like Experian Boost® as a means to add positive information to credit reports underscores the proactive steps individuals can take to enhance their creditworthiness.
In essence, the article provides a comprehensive overview of credit scores, the factors influencing score discrepancies, the impact of inquiries on scores, and actionable steps to cultivate and maintain a positive credit profile. As an enthusiast deeply immersed in this subject matter, I can confidently affirm the accuracy and relevance of the information presented.
