Understanding your credit score is confusing but worth the effort
Some numbers matter more than others in life. Your cholesterol count, wedding anniversary date, and credit score: These are numbers that matter. They might not matter in that order, but those are the kind of numbers that can really impact your life, especially if you forget them.
One of the things that makes understanding that Confusion is the norm for people when it comes to credit scores. Credit scores are difficult because there are multiple scores. Which number do creditors give the most weight when evaluating credit? In reality, credit bureau scores weren’t meant for the consumers to deal with, but here’s some info that will at least make them understandable.
A brief history of the standardized credit score
Before the creation of standardized credit scores, lenders and banks used their own systems to evaluate lending risks. These systems were based entirely on a credit report and varied drastically from one lender to the next. The major problem with this original system was that it was based solely on a bank officer’s ability to assess risk rather than a common set of rules with clear and specific calculations.
The Fair Isaacs Company set up the first credit-scoring system during the 1970’s to help minimize the inconsistencies inherent in lenders using their own credit systems. The new system became known as the FICO scoring system. The FICO system is based on an algorithm which has been adopted by credit reporting bureaus. A pervasive question about FICO scores is why each bureau gives a different score. Scores will differ quite often, which only adds to the confusion.
Why do I have several scores and why do they differ among the credit bureaus?
There are three major credit reporting bureaus: Equifax, Experian, and TransUnion. One reason your scores differ is that not all businesses report everything to all three. The scores are different because the information used to derive the scores is different. For example, TransUnion might not have exactly the same information about your credit history as Equifax does, and vice versa. Each bureau might be missing information that helps or hurts your score, and will derive a different score based on the information at hand.
So, what’s in a number?
Each of the bureaus claims that their score is the most reliable, naturally, but in reality, one particular score may be different from the others, but it is not necessarily any better. You can get a lot farther to understanding discrepancies in your credit scores by comparing information in each reprt and make sure it’s accurate. Disputing errors can clear up innaccuracies and maybe even boost your score. You might not be an expert at understanding credit scores, but you’ll understand what’s on them.
