Why Is My Credit Score Different?

When it comes to managing your finances, your credit score plays a pivotal role. But sometimes you may have different credit scores across the different scoring models, prompting the question, “why is my credit score different?” In this article, we will delve into the various factors contributing to these variations, providing you with a comprehensive guide to navigate the complexities of credit scoring.

What is a credit score?

A credit score is a 3-digit number based on your credit history that is meant to give a rating of your creditworthiness. Lenders use this score to assess the risk of lending you money. The higher your score, the more likely you are to be viewed as a reliable borrower.

Importance of credit scores

Credit scores are crucial for various financial decisions, including:

• Loan approval: Lenders use your credit score to determine whether to approve your loan application.
• Interest rates: A higher score often leads to lower interest rates, saving you money over time.
• Insurance premiums: Some insurance companies consider credit scores when determining premiums.

Credit bureaus

There are 3 primary credit bureaus in the United States: Experian, Equifax, and TransUnion. Each bureau collects and maintains credit information, which can lead to different credit scores.

Why scores vary by bureau

• Data reporting: Not all creditors report to every bureau. Some may only report to 1 or 2, leading to discrepancies.
• Timing: Each bureau updates its records at different times. A recent change in your credit behavior may be reflected in one report but not in another.
• Errors: Mistakes can occur in reporting, leading to inaccurate scores.

Understanding scoring models

Credit scores are calculated using different models, the most notable being FICO and VantageScore. Each model has its unique methodology for calculating scores, which can result in different credit scores.

Differences between FICO and VantageScore

• FICO: Widely used by lenders, FICO scores range from 300 to 850. The score is determined by factors such as payment history, amounts owed, length of credit history, types of credit, and recent inquiries.
• VantageScore: This model also ranges from 300 to 850 but weighs factors differently. For example, it places more emphasis on your recent credit behavior and the total amount you currently owe.

Variations in scoring models

To make things a little more complicated, each scoring model may have multiple versions. For instance, FICO has several iterations, each with slight differences in how they evaluate credit data. Therefore, your score can vary significantly based on which version of a model that a lender uses.

The timing of your credit check

Credit scores are dynamic and can change frequently based on your financial activities. If you check your score today and then again next week, you might notice a different credit scores due to recent transactions or updates. Most credit scores are updated every 30 days. If a lender checks your score shortly after a significant change—like a new credit inquiry or loan payment—it may not reflect the most current information. Here are some of the activities that could impact your score differently across models.

Credit utilization

Credit utilization refers to the amount of credit you are using compared to your total available credit. This ratio is a significant factor in determining your credit score. Maintaining a low credit utilization ratio (ideally below 30%) can improve your credit score. If you max out your credit cards or take on new debt, your score may drop, leading to discrepancies when checked across different platforms.

Payment history

Your payment history is one of the most critical components of your credit score. It reflects your track record of making payments on time. A single late payment can have a substantial negative impact on your score. If a lender checks your score shortly after a missed payment, it may differ significantly from a score checked before the payment was due.

Credit history

The length of your credit history includes the age of your oldest account and the average age of all your accounts. A longer credit history can positively impact your credit score. If you open a new credit account, it can lower your average account age, potentially resulting in a lower score. This factor can contribute to discrepancies between different scores.

Credit mix

Having a diverse mix of credit types—such as credit cards, mortgages, and personal loans—can enhance your credit score. Lenders prefer to see that you can manage different forms of credit responsibly. If you only have one type of credit, your score may not reflect your ability to handle various credit products. This limitation can lead to different scores across platforms when credit mix is considered.

Hard vs. soft inquiries

There are 2 types of credit inquiries: hard and soft. Hard inquiries occur when you apply for new credit, while soft inquiries happen when you check your credit or when companies conduct promotional checks. Hard inquiries can temporarily lower your credit score, which may not be reflected in all scoring models. If a lender checks your score right after a hard inquiry, you may see a different number than if you checked it before applying.

Monitor your credit

Regularly checking your credit report can help you stay informed about your credit standing and catch any inaccuracies that may lead to score discrepancies.

There are various services available that allow you to monitor your credit score for free, including Best Egg Financial Health. This powerful suite of financial tools is designed to help understand how your financial actions impact your scores across different bureaus, as well as pay down debt, build a budget, and reach your financial goals.

What to do if your scores differ

If you notice significant differences in your credit scores, consider the following actions:

• Obtain your credit reports from all 3 bureaus to identify any discrepancies or errors.
• If you find inaccuracies, reach out to your creditors to resolve the issues.
• Before applying for credit, ask potential lenders which scoring model they use to evaluate your creditworthiness.

Stay informed and proactive about your credit, so you can better manage your financial health and understand the reasons behind different credit scores.

Conclusion

Navigating the world of credit scores can be challenging, especially when discrepancies arise. By understanding the various factors that contribute to different credit scores, you can take control of your financial future. Regularly monitor your score, maintain good credit habits, and be aware of the nuances of credit scoring to make the most informed financial decisions. Remember, knowledge is power, especially when it comes to managing your credit effectively.

This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.