Understanding Free Credit Scores

Understanding Differences in Free Credit Scores

In September 2013, FICO scores became more readily available to consumers when FICO introduced the Open Access program. Prior to that time lenders were not allowed to share FICO scores they purchased with consumers. Today, this partnership has resulted in millions of consumers having access to credit scores, at no charge.

Where Does Your Credit Score Come From

The three credit bureaus (Equifax, TransUnion and Experian) collect data each month from creditors and public records, to record your payment history, credit applications, collections and judgements.

The credit uses the information obtained from the credit report to establish a level of risk to the creditor. The higher the score, the lower the risk. While there are different companies that offer credit scores, the FICO score is used by 90% of lenders, making the release of the FICO score, free to consumers, significant. Consumers can now see the same score lenders use to make credit decisions. To learn what determines your credit score and how your score is calculated Click Here

Why Are Scores Different From Different Sources

Some of the confusion around credit scores is that they are not all the same. The following are the most common reasons this occurs:

Three credit bureaus capture different information, leading to different scores across credit bureaus. Some lenders use all three scores (mortgages), where others use one score (credit cards). Some creditors do not report to all three credit bureaus and credit bureaus display information differently, which can result in varying scores.

Not all credit scores are FICO scores. The scoring models and algorithms are different for each company. For example: FICO scores ranges from 300 to 850, where the less frequently used Vantage Scores range from 300 to 990.

Lenders can tweak the scores to meet their own risk needs, creating a different score from what FICO sends them.

FICO has 8 different scoring models. Much like smart phones come out with new versions to account for new technology, over its 25 year history, FICO has come out with 8 different scoring models. Each model is updated to reflect consumer spending patterns and new data around risk. When a new version comes out they make it available to all lenders, but not all creditors use the latest version.

They also provide auto lenders and credit card companies with scoring models specific to their industry needs.

Below is a chart that shows which companies tend to prefer which scoring models. The exact model used may vary among creditors.

Experian Equifax TransUnion
Most Used FICO Score 8 FICO Score 8 FICO Score 8
Auto Lenders FICO Auto Score 8
FICO Auto Score 2
FICO Auto Score 8
FICO Auto Score 5
FICO Auto Score 8
FICO Auto Score 4
Credit Card Companies FICO Bankcard Score 8
FICO Score 3
FICO Bankcard Score 2
FICO Auto Score 8
FICO Auto Score 5
FICO Auto Score 8
FICO Auto Score 4
Mortgage Lending FICO Score 2 FICO Score 5 FICO Score 4

Information obtained from http://www.myfico.com/crediteducation/FICO-Score-8.aspx

There is a lot riding on your credit score, from loan approvals to deposit requirements for cell phones and utilities. As more companies are relying on credit scores and credit reports, understanding where your score is has become a necessity.

As scores vary from different sources, the best strategy is to track one score over time. This will give you a ballpark on how your credit score is improving or declining. It will also help you take action to improve your score, when needed.

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