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Do I Have More Than One Credit Score?

Do I Have More Than One Credit Score?

 

                One of the most important parts of anyone’s financial life is their credit report. Without a good credit report and a corresponding good credit score, it becomes a lot harder to get approved for credit when you need it. You may not be able to buy things like cars, homes, or even a good education—and, if you are approved, you’ll pay a lot more for them.

                It’s a rare consumer nowadays who doesn’t know that their credit score is heavily determined by what's in their credit history.  And almost all consumers also know that credit reports are maintained by the three national credit bureaus: TransUnion, Equifax and Experian. But, did you know that the information and scoring model used by each of those three credit bureaus varies so each bureau can show a different credit score for you?   

                Add to that possibility the real life scenarios that different lenders emphasis different segments of your credit score. Auto lenders might weigh various aspects of your credit history differently than a credit card issuer or mortgage lender. For instance, a credit card company might look more at your history with revolving credit while a car lender could focus more on your repayment record.

                Insurance companies can also come up with their own credit scores as a way to evaluate things like a customer's likelihood to file a claim or pay a premium,

                So how do you know which score lenders will be looking at? Simply put, you don't. Which is why experts said the best thing you can do is keep paying your bills on time, limit the amount of credit you use and maintain a good mix of credit.

                Each credit bureau is required to report customers with one free credit report a year, which means you could review your history every four months. You can review the free copies of the reports at annualcreditreport.com.

                If you do get turned down for credit, federal law requires lenders detail which score was used and why an application wasn't approved. That's a good opportunity to pinpoint and work to improve any problems.

                Before we had the giant credit bureau conglomerates we have today, things worked differently. Small businesses and banks extended credit to customers directly, through their own vetting processes. This worked well in small communities where everyone knew everyone else, and consumers couldn’t hide from their creditors. Over time, cities became larger and people moved around more, so it became harder for business owners to know who was likely to pay back their bills.

                Vetting people for credit became a big problem, and some folks stepped up to the challenge of solving it. Merchants, trade guilds and financial groups developed lists of trustworthy customers that they passed around to members for a price. If you didn’t pay your bills, there’s a good chance you’d be blacklisted, literally, and you’d have a hard time getting credit from anyone who paid for one of those lists.

                Over time, these credit groups grew into for-profit companies that developed, expanded and merged, so that what we have left today are the three giant consumer credit reporting agencies: Experian, Equifax, and TransUnion.

                Since each credit bureau is its own business, they each operate in their own way. They collect different information, for example. TransUnion reports extensive data about your employment, including your employer’s name, your position, and the dates that you were employed. The other two agencies report the employer’s name.

                To add even more complexity to the equation, none of your creditors are required to report data about you to any of the credit bureaus. They report voluntarily. As a result, many report to just one or two, but not all three credit bureaus. Credit bureaus even use multiple credit scoring algorithms, some of which are company-specific.

                The result is a patchwork of data about you that is very likely to vary depending on which report you look at and which method is used to calculate your score. This is why it’s important to keep an eye on your credit report from each of the credit bureaus, to make sure the data is accurate.

                It’s especially helpful to check your credit report just before applying for any credit, a new job, or a new apartment as well, to ensure accuracy and avoid surprises.

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