Everybody involved in the process of transacting using credit cards is aware of the importance of credit scores. It is the numero uno factor If you are considering expanding your investments or applying for loans such as a home mortgage or car loan. And, it can directly impact how much you’ll have to pay in interest or fees if you’re approved
However, credit scores can be tricky and they may vary depending on the credit reporting bureau. Let’s take you through how that happens.
Credit Reporting Bureaus
It is very common to have different credit scores across all credit reporting bureaus. One may expect them to be the same throughout but it’s highly improbable. There are many factors that contribute to your credit score being different on TransUnion, Experian and Equifax.
This difference stems from the way these bureaus collect information and provide it to banks or financial institutions. They maintain their own records and use their separate methods that lead to variable credit scores in different agencies.
Companies involved in the process
The main reason behind the lack of a uniform credit score across all credit reporting bureaus is the process of the companies that report information to these bureaus. Some of them might send their report to two bureaus and not send it to the third one and hence, the lack of information creates the discrepancy in credit scores.
Number of hard enquiries
Another reason for the credit scores discrepancy is the number of hard enquiries any lender makes about a borrower. What is a hard enquiry you ask? So, in case a lender wants to know about your credit report, they make an enquiry to the credit bureau. These are of two types:
- Soft Enquiry– This inquiry is done by the customer as well as the lender or a banking company to provide you with pre-approved offers. These inquiries don’t impact your credit score.
- Hard Enquiry– Such an inquiry is made by the lender to be sure of the financial status of a borrower. These inquiries reflect on the credit report and can influence your credit score in a negative way. But how? Too many hard inquiries in a short span of time can be seen as your inefficiency to repay the borrowed money.
This implies that one has to make sure they are not getting a lot of hard enquiries or else their credit score will get affected. If a lender randomly picks any one of the many credit reports and sees the hard enquiry, it may affect their decision to lend you the money if it does not meet the given criteria.
Another big reason behind the difference in credit score across bureaus has to do with the time of their production. There is a particular time when your credit scores are calculated, this factor doesn’t change through the years like your credit report information changes. This is a separate way of evaluating the risk when a lender decides to lend you the money. This reflects your credit score from the instant it gets requested from a lender or the customer. The score gets calculated in that moment and shows your latest credit history.
Lenders who have an active account with you update your credit report on a monthly basis. And they may choose their own time to do the same. It can be one of the reasons why your credit score can be different when checked during any given day of the month. This is probably a result of multiple updates within the period of 30 days
The difference in credit scores can also be very conspicuous if updated negative information goes into it. Negative information can be anything from late payments to bankruptcy. It can significantly lower your credit score and dampen your image as a borrower.
Well, those were some of the major reasons why your credit score varies through different credit reporting bureaus. To maintain a good credit score irrespective of the credit bureau, you have to make sure you don’t end up with defaults and ensure that all the repayments are done on time. This will show the lender that you’re a responsible borrower and it will strengthen their trust in you when you need money the next time.