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credit-report-comparison

Why Do the Credit Scores I Pull Look Different Than the Ones My Lender Pulls?

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Why Do the Credit Scores I Pull Look Different Than the Ones My Lender Pulls?

“Help! I’m really confused! I got all 3 of my credit scores online last week and they looked really good. Today I applied for a mortgage and the scores the lender pulled look totally different. All 3 scores are about 50 points lower than the scores I saw online. Thankfully, my scores were still high enough to get a mortgage loan, but why are the scores so much lower today?”

In the credit world there are few things which frustrate and upset consumers more than discovering the sometimes vast difference between consumer credit scores and the credit scores used by lenders. Popular TV commercials for credit monitoring websites often confuse consumers and lead them to believe that they have only one credit score. However, the truth is that there are actually hundreds of different types of credit scores. The idea that you have one "official" credit scores is a complete myth.

Consumer Scores Vs. Lender Scores

While there are hundreds of credit scores available, most of these scores can be boiled down into one of 2 categories - consumer scores or lender scores. (Insurance companies often use credit based insurance risk scores as well, but for the purpose of this article those scores will fall into the "lender" category as well.) Consumer scores are scores that are accessible to you individually. You can purchase these scores from the credit bureaus directly, from FICO directly, or from a host of consumer credit monitoring websites. Some websites will offer you free credit scores in exchange for signing up for a trial offer of their credit monitoring services. Other websites will offer you a free score from 1 of the 3 major credit bureaus (not all 3) in exchange for your email address and the right to advertise financial services to you. CLICK HERE if you would like to compare websites where you can access your 3 consumer credit scores.

Lender scores are almost always some version of a FICO score. There are some lenders which have begun using VantageScore credit scores (a score created by the credit bureaus themselves) in recent years, but FICO is still the most popular lender score in use today by a landslide. Both FICO and VantageScore have released multiple generations of their credit scoring software. Additionally, FICO scores come in many varieties (FICO Mortgage Score, FICO Auto Score, FICO Personal Finance Score, FICO Installment Loan Score, etc.) and each different FICO score variety typically has different versions in use as well. If today you were to pull a copy of your consumer credit scores, have a mortgage loan officer pull your credit scores, and have an auto lender pull your credit score then you have almost a 100% chance of getting a different set of numbers every time. Credit scores can vary pretty wildly depending upon which credit scoring model is being used to calculate them.

Focus On Healthy Credit

If you are feeling frustrated or overwhelmed as you try to keep track with all of the different possible credit scores, you are not alone. Remember the statement above revealing that you have hundreds of credit scores? It would be practically impossible for a consumer to keep track of each one of these scores individually. Instead of spending time and energy focusing on the numbers, it is much better to focus on the health of your credit as a whole.

The fact of the matter is that all credit scores are based upon the same data. Your credit scores are calculated from the information which is contained in your credit reports. (Don't forget, you can get a copy of all 3 of your credit reports, without scores, completely free once a year at www.annualcreditreport.com.) If your credit reports show that you routinely make late payments on your accounts, your scores will suffer regardless of who pulls them or which credit scoring model is used to calculate them. If you have clean credit reports with no collections, no late payments, and low credit card balances then all of your many scores will likely be in great shape. You may have hundreds of scores, but you only have 3 credit reports. You may not be able to control your credit scores, but you can absolutely control your credit management habits.  

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Michelle Black is an author and a credit expert with nearly 2 decades of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars on various credit and financial topics. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft.

Expert Credit Advice:

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5 Steps to Prepare for a New Auto Loan

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5 Steps to Prepare for a New Auto Loan

Having good credit is an important goal for every adult to set, but it is never more important for a consumer to have good credit than when he is preparing to make a major purchase - such as a home or a vehicle. If you are planning to apply for a new auto loan in the near future then check out these 5 steps to make sure your credit reports and credit scores are ready before you ever submit your first application.

Step One: Don't Allow Impulse to Drive You.

Give yourself enough time to bring about actionable changes on your credit reports. Buying a car is often very impulsive, certainly more impulsive than purchasing a home. However, deciding to purchase a new vehicle on impulse may be a financial mistake. Trying to purchase a vehicle without making sure your credit is in tip top shape first can result in higher interest rates, less favorable terms, higher monthly payments, and even an outright denial for a loan.

Step Two: Check Your Credit Reports.

Checking credit reports several times a year is an important habit for every consumer to develop. The importance of checking your credit is only compounded further when you are preparing to apply for a loan. Thanks to the Fair and Accurate Credit Transactions Act (FACTA) everyone has the right to a free credit report from each of the 3 credit bureaus every year via www.annualcreditreport.com. Surprisingly, even though the right to access these free reports has been available since 2003, only 4% of the available free reports are claimed annually.

Unfortunately there is currently no law which grants consumers free access to their 3 credit scores. Still, there are several websites online which offer a free or $1 view of all 3 of a consumer's credit scores as part of a trial offer for their credit monitoring services. Greatcredit101.com offers a comparison between several of the most popular credit score offers.

Step Three: Correct Errors.

If you think that credit reporting errors are rare, think again. In fact the Federal Trade Commission conducted a study on credit reporting accuracy in 2013 which concluded that over 40 million mistakes could be found on the credit reports of American consumers. Errors happen, but thankfully you have the right to dispute errors when they occur. Consumers can dispute credit report errors on their own or with the help of a reputable credit repair professional. (CLICK HERE to schedule a no-obligation credit analysis with a HOPE4USA Credit Expert.)

It is worth noting that auto lenders will not be checking all 3 of your credit reports and scores like a mortgage lender would do. However, that does not mean that you should try to take a shortcut and focus on correcting the errors on only 1 of your 3 credit reports. Different auto lenders will use different credit reports in their application processes. In other words, if you apply for a loan with ABC Bank they may pull an Equifax report but if you apply with XYZ Bank they might pull a report from Experian instead. Take a tip from the Boy Scouts and "Be prepared!" so that regardless of which credit report is pulled you will not have to worry about any unpleasant surprises.

Step Four: Take a Long, Hard Look at Your Credit Card Balances.

Arguably the most actionable way for a consumer to see a credit score improvement within a relatively short period of time is to pay down his credit card balances. Credit card balances almost always have a negative credit score impact even when the monthly payments for the accounts are made on time. Believe it or not, a whopping 30% of a consumer's FICO credit scores are based in large part upon the amount of credit card debt he carries. The lower a consumer's credit card balances the better the impact will be upon his credit scores. (CLICK HERE to read The Ideal Credit Card Balance to Optimize Credit Scores.)

Step Five: Choose the Right Lender for Your Credit.

The last step to preparing for your auto loan is picking the right lender for your credit. Consumers with great credit are often best served by applying for financing with a "captive" lender. A captive lender is simply the financing option available through the manufacturer of the vehicle (i.e. Chrysler Financial). Captive lenders often offer financing at very low rates, sometimes even 0%, as an enticement for consumers with pristine credit to purchase their vehicle over a vehicle made by another auto manufacturer.

Consumers with good, but less than perfect credit should consider checking out the financing options available through their local bank or credit union. Finally, remember that it is smart to ask questions and to rate shop before settling on a lender as well. Purchasing a vehicle is one of the most expensive purchases that an average consumer makes. It pays to take the time to prepare for your best possible outcome ahead of time.

credit-expert-michelle-black

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 

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Why Do the Credit Scores I Pull Look Different Than the Ones My Lender Pulls?
Why Do the Credit Scores I Pull Look Different Than the Ones My Lender Pulls?
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Where Do Credit Scores Come From?
Preparing Your Credit for a New Mortgage
Preparing Your Credit for a New Mortgage

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Credit Report vs. Credit Score - What's the Difference?

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Credit Report vs. Credit Score - What's the Difference?

Credit Reports versus Credit Scores

Let’s face it, for most people the world of credit can be a very confusing place. If you can’t explain the difference between a credit report and a credit score, you are not alone. People often use the terms “credit reports” and “credit scores” as if they were interchangeable. However, credit reports and credit scores are two totally different animals. Here is a crash course in credit terminology to help you make sense of this confusing topic and turn you into the super savvy consumer you always wanted to be.

Credit Reports

There is not merely one, but rather three major credit bureaus who compile data from lenders, credit card companies, collection agencies, public records, etc.  The credit bureaus are Equifax, Trans Union, and Experian. The data is compiled into credit files which are then used to generate credit reports (basically user friendly versions of the credit files themselves). In fact, the credit bureaus compile credit data about millions of consumers and sell credit reports to lenders and directly to consumers themselves.

If you have not checked your credit reports in a while, it is a good idea to do so right away. After all, it is ultimately your responsibility to monitor your credit reports for errors and for fraud. You can access a free copy of each of your credit reports (NOT your credit scores) each year at www.annualcreditreport.com. Credit reports do not exist to judge your credit management history, but rather to simply lay out the facts regarding how well you manage your debts.

Credit Scores

Contrary to popular belief, the credit bureaus themselves do not calculate your credit scores. Where a credit report simply lists a record of your credit management history, a credit score actually exists to evaluate and rate that data into an easy to understand number for lenders. A low number indicates that the consumer has a history of poor credit management. A high number indicates the opposite.

The original and most popular credit scoring model by a huge margin is FICO. In 1989 FICO partnered with Equifax to introduce the first credit bureau FICO risk score. The purpose of a FICO credit score is to predict risk – specifically the risk of the consumer going 90 days late on any account within the next 24 months. Today, FICO builds credit scoring software and installs it on the mainframe of each of the 3 major credit bureaus. The credit bureaus will use FICO’s software to calculate their own credit data and then sells the credit reports with credit scores to lenders. FICO receives a royalty from the credit bureaus for the use of the software.

FICO credit scores range from 300 to 850. If a consumer has a low credit score then the data in the consumer’s credit report indicates that there is a high risk involved with loaning money to that consumer. If a consumer has a high credit score then there is a low risk involved with loaning money to that consumer.

As mentioned above, consumers are currently not entitled via federal law to receive free copies of their credit scores annually. (Note: if you apply for a mortgage then mortgage lenders are required by law to show you all 3 of your credit scores that were pulled for the mortgage application.) Still, there are several places online where you can receive free educational credit scores (not the same scores as the ones used by lenders) or a free score from one of the bureaus individually. You can also view your credit scores, often initially for free, as a benefit of signing up for monthly credit monitoring services. Beware, many monitoring services will only all you to see your credit score from one and not all three of the credit bureaus. CLICK HERE to access a great comparison site where you can check out the benefits of several different credit monitoring services before deciding which option is right for you.

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Michelle Black is an 12+ year credit expert with HOPE4USA, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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