It is important to note that sometimes there could be a disparity between your FICO score and credit score. Even though they both measure your creditworthiness there are some discrepancies in the way they are computed, which will cause disparities between the two scores. Sometimes your FICO can be low and at the same time, your generic credit score from a free credit report site or credit monitoring service can be high. This disparity can be explained by one or several factors.
The first and most important factor is that the FICO score and the generic credit score are based on two different scoring systems and different formulas. They are the FICO scores that are generated by the Fair Isaac Corporation and reflect credit information from the three major credit bureaus, namely Experian, TransUnion, and Equifax. It employs a mathematical model that uses five major factors of your credit profile - payment history, amounts owed, length of credit history, recent credit inquiries, and types of credit used. All factors are not equally considered, and payment history as well as amounts owed are most important. The current FICO scoring model is up to 850.
That is why free or basic credit scores employ different and generally less efficient models that reflect a limited amount of credit data. Some of the generic scoring models may only require credit history detail and not all three credit bureau information. They are usually written in a range of 300-850. The range, as well as the calculation methods, might differ across the various websites and services offered for credit scoring. Because the formulas are different, consumers can have different scores.
Another important aspect is that FICO scores do not consider some consumer credit data, called ‘non-traditional data’. This includes items such as rent, electricity, water, and telephone bills, as well as payday loans or cash advances. However, some other credit scoring models can also consider the non-financial behavior of the borrowers and other additional information into the models. Hence, consumers with short credit histories but responsible non-traditional behavior may end up with higher generic credit scores. On the other hand, reliance on conventional credit information can result in FICO scores being stagnant.
The number of recently opened credit accounts and the scope of hard credit inquiries can also reduce FICO scores more than some other credit score types that do not take into account. Some credit scores that are offered for free may not update or even factor in hard pulls from credit checks. New credit accounts and/or hard inquiries trigger severe short-term point deductions under FICO models that assume reckless credit use and increased risk.
Further, the new FICO 8 model gives less importance to the total debt and unpaid collection as compared to the earlier models. However, most free credit scores still have those elements as key inputs in evaluations. In the case of large debt balances or unpaid collections, cheaper credit scores could consider creditworthiness more favorably than the new FICO standards.
Therefore, higher generic credit scores may be the result of the formula or the exclusion of negative patterns that adversely affect FICO scores. This does not necessarily mean that those higher credit scores are more accurate or reliable evaluations for lenders. FICO scores remain the benchmark tool used by most creditors and lenders to evaluate the risks of each candidate for a loan. Therefore, consumers who have FICO credit scores of inconsistency should still try to know why their FICO scores are low by looking at the marks of each factor and trying to improve on it in the future by maintaining healthier financial habits. If one becomes obsessed with attaining higher generic credit numbers, the exercise may only serve to lull one into a false sense of security rather than help clarify one’s credit risk profile as per FICO models.
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