Understanding Credit Scores and Credit Bureaus
Your credit score is a three-digit number that represents your creditworthiness, essentially a snapshot of your financial health. Lenders use this score to assess the risk of lending you money and determine the interest rate you’ll pay. While there are multiple credit bureaus, FICO® Scores are the most widely used by lenders, with over 90% of lending decisions relying on this specific score.
The Big Three Credit Bureaus: Experian, Equifax, and TransUnion
Although Experian is the largest credit bureau in the US, all three bureaus (Experian, Equifax, and TransUnion) are considered equally accurate and important. They collect and maintain consumer credit information, which they then sell to other businesses in the form of credit reports. These reports include details like your payment history, credit utilization, account types, and inquiries.
Why Your Credit Scores Might Differ
Even though your credit score may differ slightly between the bureaus, they are practically equal. This is because:
- Not all lenders report to all bureaus: Some lenders might only report to one or two bureaus, leading to discrepancies in your credit reports.
- Information might not be identical: The bureaus might not receive the same information about your accounts, leading to slight variations in your scores.
- Scoring models differ: While the primary credit scoring models (FICO® and VantageScore®) are equally accurate, they use slightly different formulas to calculate your score.
Which Credit Score Matters Most?
As mentioned earlier, the FICO® Score is the most important one for lenders. However, there are different versions of FICO® Scores, with FICO® Score 8 being the most widely used. This version places more weight on credit utilization and less on isolated late payments.
Building a Strong Credit History
Creating a solid credit history is essential, regardless of the credit bureau you’re using. Here are some tips:
- Pay your bills on time: This includes credit card payments, rent, loans, utilities, and any other monthly bills.
- Keep your credit utilization low: Aim for a credit utilization ratio of 30% or lower.
- Be selective about opening new accounts: Too many hard credit inquiries can negatively impact your score.
- Monitor your credit reports regularly: Check for any errors and dispute them immediately.
Additional Resources
- AnnualCreditReport.com: Get your free credit reports from all three bureaus.
- SoFi Learn: Learn more about credit scores, credit reports, and how to build a strong credit history.
Frequently Asked Questions
- Which credit bureau is the most accurate? All three major credit bureaus are equally accurate.
- Which credit score matters most? The FICO® Score is the most important score for lenders.
- How can I improve my credit score? Pay your bills on time, keep your credit utilization low, be selective about opening new accounts, and monitor your credit reports regularly.
Remember, your credit score is a dynamic number that can change over time. By following these tips, you can improve your credit score and qualify for better interest rates on loans and credit cards.
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Lenders use your credit score, which is a three-digit figure, to decide whether to approve you for financial products like loans and credit cards.
While credit scores normally range from 300 to 850, it can be difficult to determine which version you are being assessed on during the application process because there are numerous variations, from base scores to industry-specific scores.
It can be challenging to determine what credit score range you fall into and which products you have the best chance of qualifying for when you check your score with your credit card company or on a personal finance website only to discover that it differs on another. Additionally, when a lender obtains your credit score, they might do so from Experian, Equifax, or TransUnion, or they might ask for a particular version that differs from the one you checked.
The majority of credit scores include the same elements, including length of credit history, utilization rate, payment history, number of new inquiries, and range of credit products. However, there may be score differences for a variety of reasons, which CNBC Select breaks down below.
6 reasons why your credit score differs
- Credit scoring model: A variety of models are available to score your credit history. However, FICO or VantageScore are the two primary credit scoring models that are usually used by lenders. Both businesses assess the same primary elements of your credit history, such as your payment history and utilization rate, but they weigh each element differently based on their own formulas.
- Score version: There are numerous credit score variations that are divided into base scores and scores unique to certain industries. Base scores, such as FICO® Score 8 or VantageScore 3. 0, show lenders the likelihood you’ll repay any credit obligation. Industry-specific scores, like the FICO® Auto Score 9, which is used to make auto loan decisions, indicate your likelihood of repaying a particular loan.
- Credit bureau: Information from your credit report, which is obtained from one of the three main credit bureaus (Expperian, Equifax, or TransUnion), is used to calculate credit scores. Your score varies according to the data that each bureau received; this is covered in more detail below.
- Details given to the credit bureaus: Not all of the information about your credit accounts may be given to the credit bureaus. It’s surprising to learn that lenders are not obligated to report to any or all of the three agencies. Even though the majority do, there’s no assurance that the data will be consistent, which could lead to variations in your scores.
- Date scores are accessed: There could be differences if you check your credit score at different times because one of the scores might not be current.
- Errors on your credit report: Any inaccuracies on your credit report may be reflected in your credit score. Your credit score from a report that has errors may differ from one that doesn’t if the errors are limited to one bureau. To protect your credit score, you should dispute any inaccuracies on your credit report as soon as possible.