For millions of Americans, a helpful way to manage and protect credit ratings is by subscribing to a credit monitoring service to keep tabs on one’s credit score. However, the score viewed by the consumer is not always the same as the one the lender obtains from a credit reporting agency.
This may come as a surprise to many borrowers, but both credit monitoring services and credit reporting agencies do make money by selling credit reports. Anyone can buy an educational credit score from a credit monitoring service while planning to apply for a loan, to manage debts, or to review files to reduce the risk of identity theft. Lenders, credit card companies, and landlords also buy credit reports from credit reporting agencies to help predict whether a potential customer is likely to pay their bills on time and/or default on payments.
The two main reasons that these scores may differ is because of different and the different methods of reporting used. Each credit reporting agency uses scoring models to calculate credit scores based upon statistics or a proprietary algorithm. As a result, it stands to reason that the scores can vary.
Credit providers buy three types of scores from credit reporting agencies: generic scores to evaluate general payment performance, industry scores to predict performance on a specific type of credit, and custom scores that predict performance by the company’s customer base.
Credit monitoring agencies use generic credit scores to educate the consumer using them, to help users to make improvements to their credit profile, and to plan for the use of credit in the future.
An industry credit score applies only to one’s credit performance in a specific industry. This means that the score associated with whether you have paid your car loan in a timely fashion might differ from the industry score related to your performance in paying a mortgage. If someone has always paid their car loan on time but missed some mortgage payments – it will affect the numbers. Some lenders may also have their own method of calculating a custom score that ranks a client in comparison to their overall customer base.
Reporting methods can also cause differences among individual credit scores. The credit providers delivering the data might not give all of the current information to all credit reporting agencies, or they may provide the same data but on different schedules – which can easily lead to differences in the reported credit scores. Any changes such as name change due to marriage or divorce, or a new address is added, then the new information has to be re-matched to the correct file to ensure accuracy.
Essentially, creditors can choose what information to report to which agencies, and when to do so. While some lenders report monthly to the three major agencies – Equifax, Experian and TransUnion – others might report only once per quarter or only when there is new activity on a person’s account. Regulated by the Fair Credit Reporting Act (FCRA) and monitored by the Federal Trade Commission (FTC), these agencies each compete to capture, update, and store credit histories for most consumers in the United States. The information on your credit report is supplied by lenders such as banks and credit cards, collection agencies, and court records. Other lenders may only report to a single credit reporting agency. The reporting agencies do not typically share information with one another, so the score one buys from them may not be derived from the same information as the score obtained by the potential lender.
While nothing can really be done by the end user about what credit score they see versus what the lender will obtain at any given time, what can be done is paying attention to the information in one’s own credit file and making sure it stays updated and accurate.
Always confirm that only your own information appears in your credit report, and that there are no duplicate items in your report. If you must dispute any information on your report, do make sure to contact all three credit bureaus to ensure the corrections are made for accuracy.
Keep an eye on your credit score and keep working towards improving your rating to help you be better prepared down the road. Whether you intend on applying for a loan or not, closely monitoring your credit can help to alert you to issues and any incidences of fraud or identity theft if someone were to try and obtain credit cards or funds in your name.
Your credit rating has the ability to affect housing prospects, employment opportunities, and the interest rates offered to you from credit cards and other lenders. Protecting your finances and making prudent financial decisions as a citizen of any age is important. Talk to a credit counselor, financial advisor, or an attorney to weigh your options when the financial worries feel overwhelming. There are government agencies and non-profit advocacy groups that may provide needed help. Managing your money and improving your quality of life can take time, patience, and determination.