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Credit score differences: How they occur, why they matter

Summary

The credit files’ data may differ, it can contain errors and the formulas used on it vary

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Question

Dear Speaking of Credit,
My three credit scores are 812, 788 and 741. Why is there such a difference? — Tina

AnswerDear Tina,
Without knowing anything about your credit other than your three scores, let’s look at some general reasons why credit scores calculated at different credit bureaus can vary — often quite radically. For the sake of clarity and simplicity, when referring to your “three scores” I’ll assume your three scores were calculated 1) at each of the three major credit bureaus — Equifax, Experian and TransUnion — on the same day, and 2) using FICO credit scoring formulas, though there are other scoring systems, such as VantageScore.

Credit report inconsistencies lead to score differences

Most creditors report your latest credit account information to each of the three bureaus every month, yet, some lenders, particularly small banks and credit unions, don’t report to all three. Though, nowadays, this practice is much less the case than in the past. The presence or absence of an account on one or two, but not all three, credit reports can affect the consistency of the scores across multiple bureaus.

Two types of credit information that tend to be reported less consistently than credit accounts (trade lines) are collection and public record items, such that:

  • Third-party collections, particularly those held by small collection agencies, are often reported to only one or two of the three credit bureaus.
  • Public record data (judgments, tax liens and bankruptcies) are typically reported to the bureaus by regionally based, third-party data gatherers that don’t always report to all of the bureaus.

Errors common
Another common source of credit reporting inconsistencies can be attributed to credit bureau errors, whether in your own information, such as a payment not credited by your bank, or the mixing of someone else’s information with yours. The possibility of such errors makes checking your credit reports at least once a year, or anytime major credit scoring discrepancies arise, an important part of managing your credit.

One of the causes of inconsistent information on your credit reports, even when the data is reported on a consistent basis, is the timing of updates to your credit report. Timing is especially important in credit scoring because a credit score only reflects your credit picture the moment it is requested. It is not stored and retrieved like other credit data; a new score is recalculated, according to the current credit file, with every request. For this reason, simply the timing of updates to your credit report can have a direct impact on your scores, as neither the reporting nor the posting of changes to your credit reports can be expected to occur consistently across the three bureaus.

Scoring formulas differences matter, too
While the five major credit scoring categories — payment history, amounts owed, length of credit history, new accounts and types of credit — exist for all FICO scoring models at the three bureaus, some scoring inconsistencies can result from the fact that:

  • Scoring formulas are custom-built by FICO for each bureau, often with different numbers of points assigned to the scoring factors that make up the five common categories;
  • Upgrading the formulas as part of the periodic redevelopment of the FICO models can lead to scoring impacts that range from minor adjustments to serious changes in how some information is evaluated.

The following are a few examples of formula changes arising from the latest FICO model redevelopments: FICO Score 8 and FICO Score 9. Any mix of these and other FICO versions can lead to some significant variations in scores, particularly when, as in the examples below, the differences fall within the “payment history” scoring category that makes up as much as 35 percent of the score:

EXAMPLES OF HOW FICO SCORE FORMULAS DIFFER
Type of event Older FICO model impacts Newer FICO model impacts
Paid and unpaid collections less than $100 Same impact as higher amount collectionsIgnored entirely (FICO Score 8, FICO Score 9)
Paid collections of any amount Same impact as unpaid collectionsIgnored entirely (FICO Score 9)
Unpaid medical collections of any amount Same impact as nonmedical unpaid collectionsLess scoring impact than nonmedical collections (FICO Score 9)

What differences in scores mean for you
Fortunately, your scores, though different from one another, are all within the higher score ranges, such that even your lowest score of 741 is likely to be considered a very good score by any lender. And since good scores are not likely to result from credit reports containing recently late payments or other negative items, any explanations for your score differences are most likely to be found in some combination of what’s been discussed, particularly inconsistencies in what has been reported, the timing of the updates and a mix of scoring models used to calculate the scores — all normal occurrences within the world of credit reporting and scoring.

See related: FICO’s five scoring factors

 

 

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