It is a common occurrence for the credit scores from three main credit reporting bureaus to differ. This is because the agencies use different methods of arriving at the credit scores, more algorithms, and formulas. Some of the most popular ratings that consumers have to manage include FICO ratings and Equifax ratings. Most people would be asking themselves why their FICO score is a lot higher than the score that Equifax has to offer. I have a few ideas as to why this might happen and they are as follows:
Payment History Differences
This is one of the elements determining your score based on credit card and loan payment behavior. The credit bureau records show minor variances in a few instances on whether the payments were made on time, somewhat delayed, or missing totally. Equifax's credit score will be poor if more late payments are shown on their credit record than on FICO. Little margins just a few late payments can have an impact on scores.
Overall Credit Utilization Rates
Keeping the credit usage ratio low for all of your credit cards and loans will help you generally improve your credit score. Your current outstanding debt and the credit limit you have available determine this statistic. The ratings will vary as well as the burets might estimate your usage percentage differently. Equifax is likely to provide a lower score if, for example, your use rate is greater than Equifax in comparison to the FICO score model.
Credit Mix Factors
The credit type, the different sorts of credit you have, also known as credit mix occupies 10 percent of FICO scores but doesn’t feature in Equifax risk scores at all. If you have an adequate blend of installment loans and credit cards, then based on only this factor, your FICO score would be better off than Equifax which doesn’t consider this factor.
This is the only Factor out of five proposed that can be affected by the length of credit history of the two individuals.
There are minor differences between how Equifax and FICO consider the length of your credit histories, although they both take into account the age of your credit histories that are reported on your credit report. If Equifax encounters few active trade lines that were opened long before FICO does, the Equifax score can be lower in contrast to the FICO score.
Possibly, one model may not have current information while the other is equipped with the latest updates.
Another possibility is that one credit bureau may have information that is more current or favorable than the other credit bureau(s) which will also see the same information over time. For instance, it may only be a month since you paid off some money that was remaining on your credit card credit, settled an old collection, or perhaps had one or two accounts that had gone to a collection agency being removed, such new status will only appear on either the Equifax or the FICO report. That, as it gets reported across all bureaus, should bring the scores closer together and indicate that the differences in the quality of services delivered and customer satisfaction are marginal.
Another major factor is that credit reporting bureaus treat hard credit inquiries differently from soft credit inquiries.
So, any time you pursue a form of credit line, the lender will pull your credit report from one or all the bureaus. This leads to him/her having inquiries on the report and affects the credit scores making them shrink for some time. One model may give more importance to the recent inquiries than the other model, and it can result in score differences.
Varying Account Status Definitions
The formulas for writing off accounts also distinguish between closed accounts, new accounts, and old revolving account statuses. One scoring model may use a definite account as a new one while the other one will label it as a mature and sufficiently aged account. Having these definitions fall under different categories on reports would affect the ultimate numerical values arrived at.
How to Consider Which Factors Weigh More or Less to Get a Better Credit Score?
Although FICO, as well as Equifax, pays attention to the same basic factors such as, for instance, payment records, credit history, the number of recently opened credits, the total credits, and the number of installed accounts, the weighting procedure is quite different. For example, FICO has assigned considerably more significance to payment history (35% of a score) than Equifax, which does not assign a greater importance to any one factor. If your payment history profile appears brighter to Fico, this should reflect on your score.
Modeling score ranges as well as modeling score ranges for each element also diverge.
Also, one needs to mention that the difference in the range of the scores also provides variability FICO score is between 300 and 850 and the Equifax score is between 280 and 850. A credit score of 750 in Equifax may be very good as compared to 800 for FICO and yet the risk and profile are not very much different. Because the scoring method and different agencies are likely to produce slightly different scores, some of which consumers will encounter as they compare the scores are explained by the wider range of scores in reports from different agencies.
Though it is very interesting to note the difference in the scores provided by different credit bureaus or even different lenders, you have to understand that the algorithms used are different. Of course, with real numbers in your reports, the total should become more balanced in the long run if your information is correct. This is the reason it is important to make positive adjustments to one’s financial habits, in the long run, to develop the three prime credits across all models.
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