Why Are My Credit Scores Different?

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Why Are Credit Scores Different?

 

If you’ve shopped around for any kind of loan, one of the things you likely noticed is that the credit score a lender pulls seems to be different, sometimes by quite a wide margin, from what you see when tracking your own credit scores.  What gives?  It comes down to how credit information is reported, which scoring models a lender uses, and how the algorithms work within that scoring model.  Seem complicated, and maybe somewhat confusing?  It is!

 

How Information Is Reported

Most people know that there are 3 major credit bureaus – Experian, Equifax, and Transunion, but many people don’t realize that scores vary, sometimes immensely between the 3, and for many different reasons.  The biggest reason is that not every creditor reports to every credit bureau.  For example, if you have an account go to collections for non-payment, it’s very possible a collection agency could just report to 1 credit bureau.  Assuming your credit is otherwise in good standing, this could result in 1 bureau (the one receiving the collection data) providing a score much lower than the other 2 bureaus.  This can be a benefit in situations where a lender uses a middle score where really 2 of 3 scores are important.  It can also be a problem in situations where a lender pulls just one bureau, and they happen to pull a report from the bureau reporting negative data.

 

Which Scoring Model Is Used To Determine Credit Scores?

Most lenders in the mortgage world rely on Fair Isaac, Co scoring algorithms and resulting scores when pulling credit.  You may know them by the acronym FICO.  FICO, however, charges others to use their proprietary algorithms, and for that reason, many credit monitoring services and consumer “perks” they get with credit cards for example, use their own, separate algorithm to generate a score.  These scores are often more difficult to predict, and can be very close to a FICO score or sometimes very far off.  For example, some lenders use a “Vantage” score instead of a FICO score.  To make things more confusing, scores can use completely different metrics to determine if someone has good or bad credit, too.  For example, some industry-specific scoring models use a score range up to 900, while mortgage lenders traditionally use scoring models that go up to 850.  For this reason alone, someone may believe their credit is better (or worse) than it actually is, with the only difference from what they and their lender see being the model being used.

 

How Algorithms Determine Credit Scores

Algorithms are used by all of the credit scoring models, but each model uses different algorithms that put different weight on the multiple factors that determine a credit score.  For example, one algorithm out there will ignore any and all collection accounts with a balance of $250 or less.   If a consumer pulled a score through that model they might believe they have excellent credit, while a lender using the FICO model might see low scores as a result of collection activity.

While the algorithms weigh factors differently, they all have some things in common.  Of course, an on time payment history is very important to all of the scoring models.  Having a long credit history, regularly using credit, having various types of credit (mortgage, installment loans, credit cards), and keeping credit balances low compared to credit limits are generally habits that all credit scoring models reward consumers for.  Maxed out credit cards, late payments, and major derogatory events like bankruptcy or foreclosure are penalized pretty much across the board as well.

 

We Can Help Answer Your Questions

John Meussner can help answer questions about your credit, and fill you in on your FICO scores when you apply.  FICO scores are one of the major factors in determining what loan options you’ll have, and the pricing/rates you’ll be offered when applying for a loan, so it’s important to understand how the scoring works to avoid any surprises.  Just as important is knowing that while your consumer-access scores that you get on free credit monitoring services can be a great gauge of the direction your credit is headed and where you stand, the scores your lender will pull are likely going to be a bit different.

 

With more information and a more in depth explainer, our friend Andrew Yamilkoski of Heartland Credit Restoration put together this helpful video with more insight:

 

this article was originally published at jmloans.com

 

Comments (18)

Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi John:

Great education here, as always...I suspect many consumers are confused about how the credit world works, what gets reported and where, why their scores vary, and more. And given how it does work, that's not a surprise.

Jeff

Aug 31, 2021 07:54 PM
John Meussner

Thanks Jeff --- for something so important, they really do make it complicated and in many ways unfair.  Credit scoring and how scores are used is something I'd like to see the industry change.

Sep 01, 2021 09:18 AM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Credit can be tricky that way what is a good refresher on the little things thank you for posting

Aug 31, 2021 08:58 PM
John Meussner

Thank you Laura!

Sep 01, 2021 09:18 AM
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello John - the FICO score can be mysterious to many.  Your explanation helps ensure those who might think it's fuzzy math, it's a lot more fair than that.  

Sep 01, 2021 03:44 AM
John Meussner

Yes sir, it can be frustrating to see a higher score, then find out you may have a higher rate because a lender pulled a lower score.  It at least helps soften the blow to understand why.

Sep 01, 2021 09:19 AM
Alan May
Jameson Sotheby's International Realty - Evanston, IL
A moving experience!

Great information.  Thanks for helping to clarify an issue that is typically anything but clear.

Sep 01, 2021 04:55 AM
John Meussner

Thanks Alan.  Credit reporting is one of the great mysteries of the world, which is unfortunate because of how important it is.

Sep 01, 2021 09:20 AM
Erik Hiss
Keller Williams Capital Partners Realty - Worthington, OH
You can trust me for all your real estate needs!

Thanks for the information. Sheds a bit of light on a complicated subject.

Sep 01, 2021 05:33 AM
John Meussner

Thanks Erik, appreciate your comment!

Sep 01, 2021 09:20 AM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Hi John... what great information about a topic that most people have lots of confusion about. 

Sep 01, 2021 05:37 AM
John Meussner

Thank you Nina, appreciate that  : )

Sep 01, 2021 09:20 AM
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

Thanks for the explanantion, John. 

I caution Buyers not to rely upon the "free credit report", or the "free credit scores" that they see on their charge card website.  Yes, that information is useful and informative, but it may be way off from the score that a mortgage lender will use.

Sep 01, 2021 06:12 AM
John Meussner

That's good advice Fred, it's best to just have the credit run to see exactly where things stand.

Sep 01, 2021 09:21 AM
Steffy Hristova
HomeSmart Elite Group Tempe AZ Tel: 480-966-9353 - Tempe, AZ
Tempe AZ Realtor - Your Home Close to Your Work!

John, very informative post. Home Buyers looking for a loan will be wise to connect with you early, and find out how much they pre-qualify. 

Sep 01, 2021 08:05 AM
John Meussner

Hi Steffy Hristova , absolutely - if they get to us early enough, we can often improve their scores and sav ethem additional money before they end up finding a house.  The earlier people connect, the better it ends up for them  : )

Sep 01, 2021 09:21 AM
Mark Don McInnes, Sandpoint
Sandpoint Realty LLC - Sandpoint, ID
North Idaho Real Estate - 208-255.6227

Top of the morning John.  Another stellar post.  How are things down So Cal way?  If memory serves correct I believe so nice off shores start blowing this coming month making for some spectacular surf.  Can't be work work work all the time.  Mark

Sep 01, 2021 09:56 AM
John Meussner

Hi Mark Don McInnes, Sandpoint - I moved to NorCal to be at our corporate offices, BUT, I will be enjoying a lot of time in Socal from now thru october - my favorite time of year because of what you mentioned!

Sep 01, 2021 10:26 AM
Anna Banana Kruchten CRS, CRB, Phoenix Broker
HomeSmart Real Estate BR030809000 - Phoenix, AZ
602-380-4886

Hi John another excellent article that will be very helpful to home buyers and agent as well.  Thank you!

Sep 01, 2021 10:05 AM
John Meussner

Thanks so much, Anna : )

Sep 01, 2021 10:26 AM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi John Meussner - Many buyers have very little idea of this topic.  You do an excellent job to make this information clear.  I bookmarked it for future reference. Thank you!

Sep 01, 2021 10:33 AM
John Meussner

Thank you Sheri, appreciate that!

Sep 01, 2021 11:55 AM
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is very good information to share.

Take care and be safe.

Sep 01, 2021 12:43 PM
John Meussner

Thanks Roy!

Sep 01, 2021 02:22 PM
Mayra Espinosa Realtor San Mateo Pacifica Homes
Mayra Espinosa Broker- Realtor | Call 650-996-8961 - Pacifica, CA
San Mateo County Real Estate | Buy | Sell | Invest

Thank you, John, for sharing this blog post. It was fascinating and informative!

Sep 01, 2021 02:03 PM
John Meussner

Appreciate that, Mayra : ) 

Sep 01, 2021 02:22 PM
Wendy Rulnick
Rulnick Realty, Inc. - Destin, FL
"It's Wendy... It's Sold!"

John Meussner That's one of the most lucid articles I've read on credit scoring. Thank you!

Sep 01, 2021 03:11 PM
John Meussner

Thanks Wendy, I appreciate the compliment! : )

Sep 02, 2021 04:08 PM
Dr. Paula McDonald
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

A great post on this topic. It's a lot like appraisals, not an exact science.

Sep 02, 2021 07:46 AM
John Meussner

Thanks Paula, appreciate you stopping by to comment!

Sep 02, 2021 04:07 PM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

So much revolves around our ability to manage credit and it is a foreign language for most.  This offers useful information that answers a lot of questions.

Sep 04, 2021 03:42 PM
John Meussner

Thanks Ed!  Definitely a topic that needs more clarity

Sep 07, 2021 12:41 PM
Kris Collis, Associate Broker
Smart Way America Realty - East Stroudsburg, PA
Professional Results you Expect 570-801-5525

John, You're the best at explaining idiosyncrasies and hidden secrets of the mortgage and credit world.  Thanks again for shedding the light.  All the advice and tips add up in our ever expanding cranial database of practical knowledge!

Sep 05, 2021 08:28 PM
John Meussner

Thanks so much Kris, appreciate that!

Sep 07, 2021 12:41 PM
Paddy Deighan MBA JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

still mystifying that the average credit score is 678 despite record defaults an other drains on credit scores....I do understand the reason but still....

Sep 16, 2021 09:12 PM