Why Do The Three Credit Bureaus Provide Different Credit Scores?
When you request a copy of your credit report and credit score from the major credit reporting bureaus you will find that, more often than not, you will receive three different credit scores. For many people this is very confusing, but there are some simple reasons for this.
The three major credit bureaus basically use the same formula to calculate your credit score and this is based upon the original Fair Issac Corporation formula. This said, each bureau uses its own variation of the basic formula and so there will be very slight differences arising purely as a result of the formula used for the calculation. The formula used by each agency has its own names as follows:
- Equifax - BEACON® Score
- Experian - Experian/Fair Issac Risk Model
- TransUnion - EMPIRIC®
Your credit score is calculated from the information contained in your credit file which is itself compiled from the information which is supplied to the bureaus from various different lenders, collection agencies and the courts. However, not all of these provide the same information to each of the three bureaus. For example, some lenders may only use one or two of the bureaus and so not report information at all to one or more of the reporting agencies.
Credit information is also reported to the bureaus at different times so that when a score is requested it may be calculated on more up-to-date information at one agency than the others.
It is also possible that credit was applied for under different names (for example, William Roberts and Bill Roberts) which can result in your file being fragmented or incomplete. The credit bureaus of course do try to match things up and combine information into a single file, but this does not always happen. It is also possible on occasions for somebody else's credit information to end up on your file by accident.
Finally, each credit bureau files information in a slightly different manner and this can result in minor score differences.
In order to protect your own interests it is sensible to examine your credit report from time to time to make sure that the information being held is accurate and up-to-date and, if you are looking for credit, you should certainly request a score from each agency because your score can make a very significant difference when it comes not simply to obtaining credit but to doing so at the best possible rate. This is best demonstrated by an example.
Let's assume that you are looking to buy a car at a cost of $75,000 which you want to finance over 5 years. We will also assume that your credit scores are - Equifax 725, Experian 718 and TransUnion 710.
The first thing that you will find is that lenders will typically offer your a better rate of interest the higher your credit score and that rates are usually applied to credit score bands. For example, people in the highest band of say 720 to 850 might be offered 6.14% while those in the next band down of say 690 to 719 might be offered a rate of 7.73%. For your car purchase therefore a lender who uses your Equifax score (725) will offer you a better rate than a lender using either your Experian score (718) or TransUnion score (710). This difference can often be significant resulting here on a standard mathematical calculation to monthly payments of $1,455 at 6.14% and $1,511 at 7.73%. That's a total difference over the life of the loan of no less than $3,373.
Against this you will see that it is important to not only know what your credit score is and which credit reporting bureau your lender uses, but also to know how improve your credit score. For further information on this please see our articles How to repair your credit report history and How do I repair my credit rating.
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