Why do different companies show different credit scores?

Why do different companies show different credit scores? Credit Karma showed my score 70 points higher than the banks!

Submitted by StillLearning.

Ah, the mysteries of credit scores. Let’s get the nuts and bolts down, then we can talk about the best approach to getting the information you need. There are several credit reporting companies and they each use different calculations. The key to managing your credit score is to know the source of the information and your reason for tracking your score.

How Credit Scores Work

Let’s look at how your credit score works step by step.

  1. Lenders report to one or more of the credit reporting companies, which are also called credit reporting bureaus (Experian, Equifax, Transunion).
  2. The three bureaus keep their own reports of your payment history. They create their own score and report to FICO and VantageScore.
  3. Whew! Take a deep breath and check out this infographic that might help all of this make more sense.

Federal law requires that the three reporting bureaus provide you with a free credit report (a record of your borrowing and payment habits) every 12 months, but you often pay for your FICO score. Credit scores are big business because they are used to determine your eligibility for loans and what your interest rate will be. Low scores generally mean higher interest – YIKES!

There are some free credit scores that are often called “educational scores.” These are modified by the bureaus and offered through secondary sites like Credit Karma and Credit Sesame. These sites can be helpful if you are learning how to manage credit and they often have excellent tools to explain complex concepts. However, you may notice that the scores are not the same as FICO or VantageScore.

Pop Quiz

Read the following statement from the Credit Karma website and tell me why the score provided may differ from FICO.

“Credit Karma shows your scores from Equifax and TransUnion, calculated using VantageScore 3.0. It’s free and there’s no impact to your credit.”

(Cue Jeopardy music) YOU GUESSED IT! The score doesn’t reflect information from Experian.

Here are a few more things about your credit that you should know:

  • Checking your own credit report and score never impacts your credit score. So there is no reason to be wary of checking your score.
  • The “educational” scores often are from sites that want to sell you financial products. Be WARY of ads to upsell you from the “free” service.
  • Don’t count on free scores if you are planning to borrow money or apply for a mortgage or rental. Check your real credit reports for accuracy and pay for your FICO score so you know what to expect from a lender. The Consumer Finance Protection Bureau is a trusted resource for approved credit counseling agencies. The CFPB can help you obtain and review your credit reports. They can also help you create a plan to build credit or address problems with your credit history if necessary.

Take charge of your credit score by understanding how it works and what you need to do to verify accuracy and build a solid credit history.

Photo by William Iven on Unsplash


Recommended Articles

How can I get a loan for a cheap used car?

Hello, Saundra! How do I go about finding and choosing a certain type of loan (if one exists) that would enable me to quickly buy a cheap used car (around a couple thousand) that I could be able to pay back (with no job/income) with only the money I have saved from last semester’s student… Read more

3 Reasons to Set Up an Automatic Savings Plan

There are endless strategies for saving money, but one that comes up again and again is setting up an automatic transfer. Lots of research, including our research here at SaverLife, shows that this is a good way to save more. In fact, SaverLife members who set up automatic savings transfers are 5-6% more likely to… Read more

6 Steps for When Your Credit Is Denied

  First, let’s start with the facts. There’s a widespread fallacy that a score determines whether or not you get credit. The truth is that lenders use a variety of factors to make credit decisions. These factors include your FICO scores, but also take into account your income, your employment history, and your credit history.… Read more