While the three bureaus remain the same, Equifax, Transunion, and Experian. Did you know that not all credit scores are the same. In this report we will focus on what the score is and why different scores can be generated on the same person's credit history.
First of all, I would like to give you some background on credit scoring. You may have heard of the term FICO score. The term FICO is an acronym for the company that developed the first credit scoring formula or algorithm. That company is Fair Isaac :%$amp; Co. Hence FICO ()
Don't start contacting Fair Isaac about your credit report though! They don't work with the general public; so don't waste your time.
In the 1960's the revolving credit card companies hired Fair Isaac :%$amp; Co. to develop a statistical tool, whose purpose was to create a predictive model. What does that mean$%: The credit card companies wanted a way to predict whether someone was a good or bad borrower. You see, rather than wait to find out what kind of borrower you would be after you opened an account, they wanted to be able to see into the future and know, up-front, what kind of borrower you would be. This is otherwise known as credit risk analysis.
So that is exactly what Fair Isaac set out to accomplish by means of a very complex mathematical algorithm (or formula) based on historical and associative data. What that means is that they studied millions of credit histories and they defined groups, like Good Credit, and Bad Credit. They studied the groups and looked for statistically relevant associations within and between the groups to figure out patterns of good borrowers and bad borrowers. Once they identified patterns, they could start to assign numerical values to specific behaviors, like being 30 days late, for example. Alright, without getting buried too much in the technology or the details, the bottom line is Fair Isaac came up with a system for measuring credit history and applying past knowledge to predict the likely behavior of a borrower, even before they open an account. In fact, I have heard several top industry professionals define the FICO score as follows: "What is the likelihood that a borrower will have a 90 Day Late in the next 24 months$%:"
Ok, back to the point.... Why Different Scores$%: What's the deal there$%:
Here is how that works. While the word FICO score has become synonymous with credit score, that is not the name of the actual piece of software that is analyzing your credit and generating the score. There are several renditions, and versions of Fair Isaac's credit analysis software. Names like Beacon 4.0, and Experian_98 are just examples of many versions of software that has been created over the years. So, like anything else with software, the score can be different even with the same data depending on what version of software is "running the score", or computing the score. Does this make sense$%:
Ok, to further confuse you. Not all creditors subscribe to all three of the bureaus. You see, companies actually have to pay to send all of their transaction data to the bureaus, so some smaller companies opt only to subscribe to one or maybe two of the three. So not all of the data is being recorded evenly.
For those of you with a home mortgage, you might remember that the loan officer needed to use your "middle score" of the three provided on the "tri-merge" that he "pulled" (this is industry lingo). Basically, in the mortgage business the score in the middle (not the highest, and not the lowest) is the score used to determine the underwriting decisions.
Wow...I'm not even done! Here is the next thing you need to know:
Just because you "pulled" (ordered) your own credit, let's say from a company like , or a similar company. Although this is a legitimate credit score that it is generating, it is not likely to match the credit report that your mortgage lender will get when he or she runs it. The reason goes back to different versions of software. The versions that mortgage lenders will use might and do differ from the versions that auto loan companies use for their underwriting purposes.
The only score that matters is the score being used by the company from which you are trying to borrow money. So if you get your score from a website that offers you that service, don't be surprised if the middle score that you have doesn't match the middle score that they have. Typically we are only talking about a couple of points difference, by the way. If there is a BIG difference, ask to see the report from the person who is telling you the drastically different numbers. If they refuse, something shady is likely going on and you should get a second or third opinion.