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Why Your Credit Score May Not Be As Good As You Think It Is

Daily Worth

If you’re in the market for a car or home loan, chances are you ran a free credit report to see how good (or bad) your score is. Maybe you’re feeling good about yourself, and then all of a sudden you’re denied outright.

What happened? Well, it’s likely because an individual can have dozens of credit scores, and your potential lender pulled one that deemed you less credit worthy than a different model. “On reports pulled the same day, I’ve seen credit scores vary by as much as 100 points across various scoring models,” writes Cassie Price, who worked in credit repair, for Daily Worth. “A potential lender may look at one score or three, and they may pull from different models for the same loan. The only score that matters is the one your lender is using.”

There are two main credit scoring models: FICO, which you’ve likely heard of, and VantageScore. And there are three credit reporting agencies (Equifax, Experian and Transunion) that collect different information on you at different times.

All three of the agencies create FICO scores and VantageScores, and let lenders decide which they want to use. According to Credit Karma, around 90 percent choose FICO scores. But lenders may also create their own scores, and VantageScore and FICO have also created different models for different financial products, including mortgages, auto loans, and bank cards. That means the score Lender A receives for your mortgage application may be different than the score Lender B receives to assess your worthiness for an auto loan.

There are also different updated versions of your FICO and VantageScores (the most widely used score, according to Forbes, is FICO 8). Here’s some historical background, courtesy of Bankrate:

The first FICO scores hit the scene in 1989. It (and its descendants) predicted the likelihood a consumer will become 90 days behind on payments over the next 24 months on different debt types. Over the years, the score has been poked, prodded and tweaked from its original formula to account for changes in consumer behavior and the lending landscape, says Frederic Huynh, senior principal scientist at FICO.

For example, FICO 8, introduced in 2009, penalizes isolated late payments less than previous scores, but punishes high balances on credit cards more. It ignores collection claims less than $100, and it reduces the benefit of authorized user accounts.

FICO 9, which has been introduced, “treat[s] medical debts less severely and bypass[es] paid collections accounts entirely.”

There’s not much you can do about all of your different scores—you can’t choose which one a lender uses, but it’s good to be aware of the fact that there is no single, all-determining score (you know, because credit scores and reports aren’t exactly fair or representative of you or your financial situation). But generally, your FICO score is a good indicator of what lenders will see. If you want to improve it, here’s a good guide.

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