Your free credit score may not be accurate - here's why

Here's why your free credit score may not be accurate

You may be wondering why the free credit score you checked before applying for an auto loan doesn’t match the score that the dealership pulled to determine your loan rate. Whether your score may be higher or lower than you expected, it can sometimes come as a surprise. 

The truth is that you actually don’t have one universal credit score.

What is a credit score?

A credit score is a three-digit number commonly referred to as a "FICO score" that represents how likely you are to pay back your debts to lenders on time. A typical credit score based on a variety of factors found in your credit report. Your credit report is a statement that has all of the information about your current credit activity such as loan payment history and the status of your credit accounts. 

Some factors that make up a typical credit score include:

  • Your bill-paying history
  • Your current unpaid debt
  • The number and type of loan accounts you have
  • How long you have had your loan accounts open
  • How much of your available credit you are using
  • New applications for credit
  • Whether you have had a debt sent to collection, a foreclosure, or a bankruptcy, and how long ago

Your credit score will vary because there are multiple scoring models

There are three main credit bureaus that provide lenders with credit information: Equifax, TransUnion, and Experian. In addition, there are many companies that offer free credit scores such as Credit Karma, credit card companies, and other financial services companies. The scoring model used may vary by company. Equifax, TransUnion and Experian each use their own scoring model that puts emphasis on different parts of your credit report. 

Although there are many scoring models, FICO and VantageScore are most frequently used to determine credit scores. 

FICO was created by the Fair Isaac Corporation in 1998 and is the industry standard. There are different versions of the FICO scoring model, which are updated over time. Those versions are released to lenders that will choose the FICO scoring version that best helps them make informed credit-granting decisions. 

For example, Consumer lenders, including Southland Credit Union, use the newly-updated FICO Score 9 to help with our credit-granting decisions. 

This means that there are different FICO score models that lenders and the three major credit reporting agencies use. But to receive a FICO score from any FICO scoring model, you would need to have a credit account that is at least 6 months old and has had activity on at least one of your credit accounts. 

On the other hand, a new credit-scoring model called VantageScore has been gaining traction since it was developed by the three major credit bureaus — Equifax, Experian, and TransUnion — in 2006. VantageScore calculates credit scores based on a singular formula with the combined information it receives from the three major credit bureaus. You are eligible to receive a score if you have at least one credit account, even if the account is less than 6 months old. Like FICO, VantageScore also has different credit scoring models. The most commonly used scoring model for VantageScore is the newly-updated VantageScore 4.0.

One of the biggest reasons your credit scores may be appearing differently is because you checked your credit when you were new to credit or haven’t been using it recently. VantageScore is able to issue credit ratings to millions of consumers who may not yet qualify for a FICO score. Popular free credit reporting sites, such as Credit Karma, offer credit scores based on the VantageScore scoring model. 

Your credit score may be calculated at different times 

Your credit score may also change based on the information that is available when a lender requests it. That means that even if different lenders are only checking them a week a part, your score may vary based on the information that is available to them. 

What can you do?

Although having a strong score is important, taking action to improve your credit to reach your financial goals is the most important. 

While scoring models may vary in the numbers, they will calculate your score based on similar principals like: payment history, credit usage, length of credit history, types of accounts, and recent activity. 

Before applying for a loan, Southland recommends you check and review your credit report with all three credit bureaus — Equifax, TransUnion, and Experian. You can do so here

To learn more about how you can improve your credit, check out our Improving Your Credit resource page.