Credit scoring is a dynamic and plural process. You have heard about the importance of improving your credit score, but what about credit scores? That’s right: the average consumer has about 50. If you are surprised by this fact, you aren’t alone. You’ve probably heard of the three major credit bureaus: TransUnion, Experian and Equifax. Each company compiles a version of your credit report and a score to match. So far, you have three scores, but that isn’t the entire story. Why so many? Factors include:
The credit bureaus are the major score providers, but they aren’t the only ones in the industry. Suppose you sign up for an educational website that offers a free credit score summary. Although this score may be accurate based on your information, it isn’t provided by the Big Three or likely used in a loan application. This is just one example of the many forms and sources of credit scoring.
Like credit information, your score is constantly updating and potentially changing. For example, suppose you check your Experian score in August and pay off a major debt in September. Your score could improve by several points in a 30-day period. If a new generation of score is developed during that time, e.g., FICO 9 and the development of FICO 10, you will have scores to reflect the methodology of each model.
Math and models
When the first FICO score was developed in 1989, it measured creditworthiness based on the trends and technology of the time. Over the past 26 years, the original scoring model has been refined to analyze credit types more closely, including revolving accounts, medical debt and collection accounts. While your medical debts may have been judged more strictly with FICO 7, FICO 9 uses different methodology. Your information may also be weighted differently based on the type of credit you are applying for and its purpose.
The primary factor that produces multiple credit scores is purpose. The FICO model is ever-changing, especially when purpose is added to the equation. Lenders request consumer scores based on purpose. For example, a mortgage lender wants to review different risk factors than say, an auto lender. The result is several scores tailor-made to suit each credit type:
- Installment loans
- Personal finance
These five purposes are often broken down into smaller iterations. According to Bankrate, “Experian and Equifax each provide 16 different FICO credit scores to lenders: five iterations of the general risk score and up to three generations of the five industry scores. TransUnion provides 21 different FICO credit scores to lenders, six versions of the general score and up to four generations of the industry scores.”
The bottom line: You may have too many credit scores to count, but credit health is a singular goal. Focus on the Five Factors to ensure that each of your scores is in good shape.