FICO scores are the most widely used credit references used by financial entities in the US. Though there are many other credit scoring systems, FICO is usually regarded as the most accurate and trustworthy benchmark to determine the creditworthiness of individuals, especially when they apply for a loan.
FICO scores range from 300 to 850, and the three major credit bureaus rate every US citizen in between these numbers to signify how well they have been doing with their financial management. Ironically, more often than not, there is a disparity in the FICO scores provided by the 3 major credit bureaus, and we wonder why?
Reasons for Difference in Credit Scores
Equifax, Experian, and TransUnion – the 3 major credit bureaus that maintain credit reports of all US citizens – get their information from all registered financial institutions across the country and use the inputs to maintain financial records of all US citizens. People are entitled to one free copy of their credit report from all three bureaus, every year. To obtain their credit score more than once, they need to pay a nominal fee to these agencies.
Though there are many reasons for the disparity in the scores calculated by the three major agencies, the most common ones are:
The difference in Comparison Dates
One of the most common reasons for a discrepancy is differences in the dates used to compare the scores. As credit score keeps changing based on your financial behavior, a change in credit score over time could lead to a discrepancy.
The difference in Scoring Models
Credit scores may also vary if they are calculated using different scoring models. There are many scoring models, and therefore, when scores from different bureaus are compared, it is important to ensure that they are calculated using the FICO model.
The difference in Information Available
All lenders are required to inform all the bureaus about their financial transactions and updates. If, however, they fail to furnish the same figures to all bureaus within the same timeframe, it is likely to result in discrepancies.
If Not FICO, then What?
While FICO is the most used and trusted credit score, several other credit scores are also gaining trust in the credit market. These include:
Some of these models have been developed by the credit bureaus themselves while others have been pitched by other companies. All of these models follow similar guidelines and none of them can be rated better than the other. FICO is the market leader because it has been around for a long time now and has become a standard rating method for lenders. As far as alternatives are concerned, VantageScore has become the biggest competitor of FICO, with its much simpler calculation method and fairly accurate results.
Understanding Very Different Credit Scores
FICO score often varies from agency to agency as it is based on the information provided to the bureaus and their calculating model. Therefore, a slight disparity in FICO scores should not be a concern, unless there are visible errors in the credit report. If you are still confused as to why you have two very different credit scores, call us anytime and we will be happy to help.