Did you know that your credit score can vary depending on who pulls your score and why? Imagine this …. You need a new car and are thinking of buying a home too. You do homework and pull your score online directly from the credit bureaus. Your score online is 650. The car dealer tells you your score is 619 and your mortgage officer says your score is 694. Why the different scores? What causes such disappointments?
Lets look at 3 items that can make your score vary.
1. Which credit bureau was the credit dropped from?
There are 3 major credit bureaus: Equifax, Experian, and Transunion. Each bureau collects information as reported by your creditors. However, your creditors may not report to all 3 bureaus. This means that you may have different information in each bureau. Different information can make for different scoring outcomes.
2. There are differences in scoring models.
A scoring model is the formula used to create your score. Fair Isaac is the company that creates the models for the 3 bureaus. While there are 3 different bureaus, each bureau can have different models of scoring. Think in terms of computer programs … one program may go through updates and changes (version 3.0 and then 4.5.) Both versions work, but have different options based on the version. The same principal works here. The bureaus may be using different versions of scoring models depending on who pulls the credit.
3. What was the reason for the credit inquiry?
One more factor may be the reason your score was dropped. You see, buying a home should require different parameters that getting a credit card or buying a car. Each one of these will weigh different factors of your credit file more heavily. For example, a credit card company will want to factor revolving credit more heavily that a car loan. This way they will have a better indicator of how you will handle the new revolving credit card they are considering giving you. So the reason for your credit inquiry (mortgage, loan, credit card, etc.) will affect what makes your score up. Note: Federal law now requires that all 3 bureaus make a copy of your credit report available to everyone. Since there are no others reasons for the inquiry the score will be generic based on all your credit, not a score potential creditors will use in their decisions.
Does this all seem confusing? Well unfortunately it is. Federal law now requires that when a credit inquiry is performed, you have the right to know the score and the indicators that helped make up that score. With the new laws enacted Congress is trying to make things better. Still, the best way to overcome these shortcomings is to build a solid credit file!