Dozens of Credit Scoring Models in the Credit Industry Each Give a Different Credit Score
The credit score you see when you check your score is probably not the same one used by lenders and insurers to make credit decisions
Most people don't know that there isn't one true credit score. In fact, there are a number of different credit scoring models and they vary from one company to another. So it's important to realize that when you check your credit score, whether from one of the major credit reporting agencies or just from your credit card company, it isn't necessarily the score that's used for your credit decisions.
Credit reports have important information besides your credit score
Credit reports are full of information, not just your credit score, that is used by lenders to determine your credit worthiness. Your credit worthiness is more than just a number. It's a combination of the information contained on your credit report, such as the age of your accounts, the number of accounts, the types of accounts, and how you make your payments.
Each credit reporting agency calculates things a little differently
It might surprise you, but credit scores vary from one credit reporting agency to the next. One credit reporting agency might have a top score in the 800s whereas another might be in the 900s. So it can be difficult to compare from one to the other. In addition, a potentially negative item on one credit report might not be on another credit report, giving you vastly different credit scores.
The score you see on your credit report isn't the same one the lender sees
The credit score you see when you pull your own credit report is an educational score, or an approximation of your current credit situation. This score is used to give you a general idea of the state of your credit. This score isn't used to calculate your credit decision by lenders. Instead, lenders use a different credit score that is customized to the type of credit you're trying to get, whether it be an auto loan, mortgage or credit card. The lender might even use a scoring system that it developed itself. Many lenders use a FICO score, which standardizes information from the credit reporting agencies, and some use VantageScore, which was developed by the major credit reporting agencies as an alternative to FICO. One lender might be using FICO 8 while another is using the newer FICO 9 or VantageScore 4.
Your credit score is changing constantly
Because creditors are frequently sending information to credit reporting agencies, your score can always be changing. It can even change if your lender makes a change to the algorithm it uses to calculate your credit score. So your credit score can vary a few points each day, which can be enough to disqualify you from the best rates if you are right on the cusp of a lender's rate tiers.
The Fair Credit Reporting Act
The Fair Credit Reporting Act provides directions as well as limits on the ways in which reporting companies provide credit report information. It also gives you specific rights to dispute information contained on your credit report if there are errors or inaccuracies.
Fixing Errors in Your Credit Report
Lenders will typically pull information from each of the big three credit reporting agencies. If one of those agencies has an error on your credit file, your credit worthiness with that lender will suffer. So it's always important to check your credit report before applying for credit. If your credit score is lower than you anticipated, you might want to look over each of your credit reports and dispute any information that is outdated or incorrect in order to raise your credit scores.