Credit Score Differences: A Comprehensive Guide
Getting Started with Understanding Credit Scores
If you have ever applied for a mortgage before you may already know that your mid-score is the score lenders use when determining if you qualify for a home loan.
When a lender checks your credit they do what is called a tri-merge. This means that your credit scores from Experian, Equifax, and TransUnion are pulled and checked. The score that falls in the middle is the one lenders look at when determining if you qualify and what loan products you qualify for.
That part is easily understandable, right? However, the one question that we get all the time after we tell the borrower what their middle score was is, “Why are my credit scores so different between Experian, Equifax, and TransUnion.” That’s a great question.
Sam Parker, CEO, My Credit Guy Credit Restoration, says there are a few different reasons why your scores are different.
First of all, each credit bureau works independently of each other. They are three totally different companies that have nothing to do with one another. They don’t share information with each other, period. They are different, they are separate. Keep that in mind.
If they weren’t you would only have one credit score. This could actually hurt you. By having three credit scores the lender uses the mid-score. In this regard, you are getting the benefit of the doubt. Think about it, you could have one score in the dumps and two that are higher. Thankfully by using your mid-score lenders will ignore the bad one. That’s a good thing for mortgage borrowers. If you had only a single score, well, that 545 you have doesn’t even give you a fighting chance to get approved.
Another reason you have different scores is that there is not one single credit algorithm. Each bureau calculates your score differently. However, they all still take into account the same facts of your credit history. That means they include late pays, defaults, balance, credit limits, loan amounts and more. But each takes all this information and computes it in a different way. Some put more emphasis on balance to limit ratio, some weigh late pays more heavily.
Another point to consider is that they don’t all get the same information. Not all of your accounts are required to report to all three bureaus. Some of your credit cards may only report to TransUnion or Equifax. Another might report to just Equifax. Your mortgage reports to all three.
Beyond that, you may go to a bank to get your car loan that only reports to TransUnion or only reports to Equifax and Experian but not TransUnion. It’s because of that you’re gonna have a difference in your credit scores from bureau to bureau.
Sam also says that when you’re building positive credit, you might have some negative or derogatory comments on your report from only one or two of the bureaus and not all three. A lot of collection companies only report to one credit bureau. You might be asking why do they only report to one bureau sometimes? In a word, money. You have to understand that for a creditor to report to the credit bureau, it cost them money. They have to pay for it and if they decide they only need to report to a single credit bureau they might. It saves them money. .
They may only stick a collection on your Equifax report, which is then gonna have your Equifax score much lower than your Experian or your TransUnion.
As you can see there are a few different answers to one of our most commonly asked question: “Why are my credit score different between Experian, Equifax, and TransUnion?”
Understanding Credit Score Differences
Number one point, they’re three totally separate companies.
Number two point, they might be getting different information.
Number three point, they compute your credit information differently.
Hopefully, that clears things up and gives you a better understanding of how the credit bureaus work and how it affects you when applying for a home mortgage.
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