Consumer Credit Score vs. Mortgage Lender Score: Why They’re Different

by on Aug 30, 2021, 06:24 AM

Consumer Credit Score vs. Mortgage Lender Score: Why They’re Different

While borrowers are usually aware of the three different credit reporting agencies — Equifax, Experian and TransUnion — they are usually unaware of the various credit scores that are calculated and made available to banks and lenders. It can be frustrating when you’re applying for new credit, as you don’t always know which one you’re being evaluated on.

While understanding how credit scores are computed based on underlying credit reports might be confusing, things get even more so when we realize that the credit scores we see when we check our own credit vary from the scores the bank or lender might see when they evaluate us for a credit account. As frustrating as this might seem, it’s important to understand that these discrepancies do not necessarily mean that there are errors or inaccuracies in the scores or the credit reports on which those scores are based. Rather than each borrower assigned a single, unique credit score that represents their level of risk when applying for new accounts, there is actually no limit on the number of credit scores that both lenders and consumers can view as a picture of their creditworthiness. 

Let’s have a look at why scores might differ.

Five Reasons Why Scores Might Differ

The main reason why your scores differ is that the underlying data held by each bureau is different. 

1. Different providers of scores and reports 

A credit score is different from the actual credit report. The providers of scores might be different from the credit bureaus themselves. Each score provider maintains its own data and proprietary algorithms to calculate credit scores.

2. Timing

Your scores may differ because you pulled them during different time periods. This might seem absurd, but if you were to check your score from one bureau today, then check your score from another bureau next week, the scores will vary. Keep this time-based component to calculating scores under consideration when pulling credit reports and checking credit scores; try to do it all on the same day.

3. Reporting discrepancies

Not all of the bureaus receive the same information. Because the information on your credit report is supplied by lenders, collection agencies, utilities and even governments — each of whom may have a different reporting relationship with the bureaus — there is most likely a variation in scores. 

4. Timing of reported data

Even if the bureaus obtain the same information, they may not receive it at the same time. As a result, one bureau may not have the most up-to-date info, leading to a different score.

5. Clerical or administrative error

There could be inaccuracies on your report due to a clerical or administrative error, such as someone else’s information being inadvertently added to your file. Or perhaps you opened up accounts using a different name and that information was not added to your account under your current name.

What You Should Do if the Scores Vary Significantly

While you do not have control over the algorithms at work behind the scenes computing your credit scores, there are still some action items you can take to ensure that your scores reflect the most accurate picture of your credit.

Get to know your credit reports

Study your individual credit reports to determine if there are any discrepancies or even flat-out errors. You can contest these directly to the credit bureaus and try to get them removed. Each of the bureaus has its own process for initiating disputes.

Research the credit industry

Try to stay as knowledgeable as you can about the credit industry. It’s important to understand the risks — but also the benefits — of opening, maintaining and paying off certain types of accounts. Consider subscribing to a credit monitoring and modeling service, such as ScoreMaster, that can perform ongoing “what-if” scenarios based on account payoffs or spending. This will help you understand your credit usage in depth. Ask your bank or employer if they offer ScoreMaster.

Get comfortable with inconsistency

Do different scores matter? The answer is: not really. Having different credit scores is normal. If you’re monitoring your credit and removing any inconsistencies, and if you’ve been paying your bills on time and reducing your debt burden, you should have the peace of mind that you are doing your best and your scores will change accordingly. 

Credit Simulations and Credit Modeling

Of course, the ability to view, understand and manage your credit is key to improving your credit profile and obtaining higher scores. Simply obtaining your free three-bureau credit reports once per year may simply not be enough. 

Consumers can get access to their 3B report through ScoreMaster, which can provide a much better idea of the score their lender will use.

Sources:

CNBC.com – Why Are My Credit Scores Different?

Equifax – Why Do Credit Scores Look Different to Consumers Than Lenders?