Why is my credit score so different in different places?

Conner recently came to our main office.

And Conner was a little bit frustrated, to say the least…

“I don’t understand why my credit score keeps changing. All I do is pay bills month-to-month. I’m worried about my credit, so I have one of those apps to monitor it – ya know what I mean? But, when I just went to look for a truck, I got quoted a different credit score at each dealership I went to.”

“So… what gives?”

Conner has an excellent question.

And there is so much to respond to in that we wanted to address it.

What does give?!?

First, we understood his confusion right away. Unfortunately, it is often not a straight-line process to get a consistent score.

Look, truth be told, there are a ton of reasons for all of the variations of credit scores. I can tell you now, depending on the source of the score, the time of the month and even the time of day that you look, they can be different by as much as 100 or 200 points.

So, let’s look at some of the ways credit scores can differ. We’ll also address some of Conner’s frustrations – as I’m sure you might share one or two or seven of them.

Credit Score vs. FICO Score?

A “credit score” is a generic term. A credit score is basically a number that represents the risk a lender takes when someone wants to borrow money.

Generally, the higher the score, the less risk. The lower the score, based on many reasons, the higher the risk for that particular lender.

Most lenders use the Fair Isaac Corporation (FICO) score to determine credit risk. However, not every FICO score is the same. There are different models that each lender can ascribe.

Some of these FICO models place a higher value on most recent activities. Some devalue debt attributed to medical bills. Still others take into account various average debt in regard to secured versus unsecured debt.

No wonder why Conner was confused.

Timing matters- some things are slower than you think

A public credit scoring application like Credit Karma updates scores every seven days.

However, most lending institutions update monthly. This makes sense considering the normal payment cycle that we all enjoy.

When you make a payment on your house, the mortgage company does not update their credit file to the three major credit bureaus daily – they update once a month.

So, keeping your bills up-to-date (yes, I mean paid in full), makes sense. Some platforms update scores and history weeks at a time, others in days.

Timing matters- some things are faster than you think

There is nothing wrong with shopping around for deals, the features you are looking for and just the quality that you want. We’re not all lucky enough to have the exact things that we need, in front of us at the exact moment that we need them.

Besides, you aren’t going to find a deal unless you look, right?

However, if you go from one dealership to another, they are going to keep running your credit score.

Now, the dealers aren’t the bad guys. In fact, for many Americans, they can be saviors for our needs. The dealers, after all, want you to drive that car off the lot. They will look for the best deal they can find. Many of them have several options to finance you.

The challenge is that each one of those companies will pull your FICO score through their model.

That can mean that at each dealer you could have your credit pulled as a “hard hit” 5-9 times.

Those inquiries can add up quickly and drop your score.

Not good.

Incidentally, the above is why we encourage our members to get a pre-approval before going shopping. That way you know how much you can spend and how that fits into your budget. If you know the most you can afford, it is easier to negotiate!

“How does FICO figure out my score?”

I can’t tell you; it’s a secret.

No really, it is.

Fair Isaac Corporation uses a complicated proprietary algorithm to determine an individual’s credit score. And most of that algorithm is under lock and key.

However, we do know that they use the following weighted factors:

  • 35% is on payment history
  • 30% is on total amount owed
  • 15% is the length of reporting to the credit bureau
  • 10% is new credit applied for
  • 10% is the type of credit you have (secured vs. unsecured)

Using the above, we can start to formulate what matters the most.

How can YOU figure it out without a degree in Economics, Accounting, Computer Sciences and Astrophysics?

There is an app for that

Actually, there are a whole bunch of applications for helping you figure out your credit score..

Many consumers have done what we have told them to do for years – which is a very good thing:

  1. Check your credit report to make sure of its accuracy.
  2. Pay your bills on time.
  3. Build up your credit accounts slowly over time.

Now our members can more accurately see the fruits of their labor.

There are so many tools that consumers can use to track your credit report, credit history and credit score. In fact, a credit score is often prominently displayed on several credit card providers statements for free.

One of the more popular apps is Credit Karma.

What is Credit Karma?

Credit Karma, and many like it, is a GREAT service at helping you to see the month-to-month impact of decisions on your score and helping you to keep your information correct. However, Credit Karma and similar services are credit monitoring services.

They are not to be used as a basis of determining lender’s risk.

For instance, Credit Karma uses a credit score called VantageScore. It derives data from two of the three major credit bureaus in the US. Their scoring model is transparent, but independent from those bureaus.

It is a wonderful free tool.

However, Credit Karma is a for-profit company. The company makes money by giving you a free credit score in exchange for learning more about your spending habits and charging companies to serve you targeted advertisements.

This is not a deceitful practice.

Many companies make money in this way, like Facebook and Amazon.

Does it all really matter in the end?

As we’ve seen, credit scores are a complicated calculation into our history with money. The simple answer to if it all really matters is yes, for the most part.

Here’s what I mean…

In preparation for this article I signed up for two free credit monitoring services.

I had applied for a loan last month so I had a recent pull of my FICO score.

The first score I received was 910! Problematic, incorrect, not precise – I could go on!

Here is why I say that…

The absolute highest FICO score possible is 850. Their scale had a high score of 1,100.

I got a second score from Credit Karma.

I looked at my data, and it was all accurate. However, my score was 27 points higher than my FICO score at First Choice. I had not applied for credit anywhere since my FICO was pulled last month. The data was accurate, and it was close to my score, but because of the things we discussed earlier, they are not the same.

From experience, some of our members report that their Credit Karma score is closer than 27 points away. This is about as close as we have seen from feedback. Which isn’t perfect, but not bad at all for being free.

Oh, you’re wondering about Conner?

Conner had a lot to be confused about. Through using tools like Credit Karma, understanding the basics of FICO scores and by communicating with First Choice, he got things straightened around.

I mean, not everyone wants a 2020 F150, but Conner is enjoying his!

Does this article help you understand a little more about credit scores, the credit scoring system in the United States and how First Choice fits into it all?

Leave us a comment, and let us know – we love to hear from you.

Spread the love