Understanding Credit Scores

Credit scores are continually evolving organisms. What many people do not know is that credit scores are calculated the minute that they are requested. Therefore, if any information in your credit file has changed, the credit score will change with it. Thus, if you credit file is updated daily, your credit score will change daily. Something as simple as a monthly credit card payment could affect your credit score.

Mostly, you have three credit scores. Each credit score comes from one of the three credit reporting bureaus (TransUnion, Equifax, and Experian). Each of these credit reporting bureaus has it own model and formula for calculating credit scores.

Additionally, each credit reporting bureau (although they should not be inconsistent) has different credit information about you in their files. Thus, you may sometimes see something as big as a thirty point (and sometimes even more) difference between your credit scores depending on which credit reporting bureau calculated your score.

Because you have three different credit scores, common sense should tell you that companies that utilize your credit score should take an average of all three scores in order to get the most accurate understanding of your creditworthiness. However, unfortunately, common sense does not reign supreme in our economy.

Many businesses use only one credit reporting bureau (most likely to save money) in order to obtain your credit score. This could work out to your advantage or it could hurt you. If the company that is pulling your credit score uses the credit reporting bureau that has calculated your highest credit score, then everything is well for you. However, if the company that is pulling your credit score uses the credit reporting bureau that has calculated your lowest credit score, it could cost you some money by way of a higher interest rate or by way of non approval of a loan.

How do you know which credit bureau is being used by which companies? There is no list that I know of that states such information. However, asking the company, in which you are doing business, which credit bureau they use will not hurt.

Additionally, if you know which companies use which credit reporting bureaus, you can check your credit scores in advance (for a fee) to discover which bureau is reporting the highest credit score for you. Once you discover this information, you can go to the company that uses this credit reporting bureau and be confident in doing business there.

The point is, know that your credit score is constantly changing and not all credit scores are created the same. Each bureau is different and, therefore, each one of your credit scores will be different. Credit score averaging is not a practice of most businesses. Therefore, do not think that a higher credit score from one bureau will “even-out” a lower credit score from another bureau. Know your credit scores and you can conquer your credit.