Are All Credit Scores Created Equal?

by Tom Fragala   

It's a common misconception that there is "one" credit score. Actually, there are a number of different credit scores you may come across, and it's important to understand the difference.

Let's start by stepping back and examining what credit scores are and where they come from. Credit scores are numbers that most lenders use to determine your credit risk — your ability to pay your bills or pay off a loan. Credit scores are calculated using the information in your credit reports. Your credit scores are important because, if they're high enough, they can often help you qualify for better rates from lenders, which can save you money!

FICO scores, provided by a company called Fair Isaac, are the most commonly used by lenders and generally range from the low 300s to the mid-800s (higher is better). You actually have three FICO scores — one score from each of the three major credit bureaus (Experian, Equifax and TransUnion). This is because your credit report is usually different at each of the three bureaus, yielding a different score. Some large lenders, like mortgage companies, often pull all three credit scores and ignore the highest and lowest in determining your credit risk. Fair Isaac's FICO score has become so widely used that it's now the "de facto" standard. This means that when financial institutions talk about a credit score, they usually mean your FICO score.

What can be confusing is that the three credit bureaus sell FICO credit scores under different names. (Equifax calls it a BEACON score, Experian calls it the Experian/Fair Isaac Risk Model, and TransUnion calls it EMPIRICA.) However, the three bureaus also have sold their own, very different credit scores for some time. For example, Experian has a scoring product, based its own analytical model, called the PLUS score. The PLUS score range differs from Fair Isaac's, though. The FICO score range is trademarked, which prevents other companies from using that exact range, so your FICO credit score is certain to be different from other scores. Equifax currently appears to be selling only FICO scores, not their own. TransUnion, through its TrueCredit division, sells credit scores called the TransRisk Credit Score, which is also different from a FICO score. We don't know the range for this score, but we expect it's similar to the PLUS score.

The credit reporting companies don't like that Fair Isaac has such a large market share for credit scores. Therefore, they recently joined forces to create a competing credit scoring system, called VantageScore, using their own formulas. VantageScore is not a commonly used score yet.

So if you looking to buy your credit score, make sure you know what you are getting. Often people have seen their FICO score and then purchased a different score later. The result is they are shocked to discover their credit score is "lower." Actually, the problem is they are comparing apples to oranges, or perhaps more accurately, Fuji apples to Granny Smith apples.

Learn more about credit scores with more great articles from CreditFYI.