Why Are Credit Scores Different Between Credit Reports & Reporting Agencies???

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut NMLS #65149

 The three most important things in obtaining a mortgage are Income, Debt, and Credit Scores.  The first two are self explanatory, but the third “Credit Scores” are not as easily defined.  This is why it is important for those of us in the Mortgage and Real Estate Industry to be well informed on how Credit Scores work, so that we can better assist our Borrowers and Buyers in obtaining the house of their dreams.

Last Friday I started my first Post  “Credit Scores Where Did They Come From & What Are They???”  in hopefully helping others become a little more familiar with this very important component in the mortgage process.  The first Post dealt with some of the history of “Credit and Credit Scores”, as well as an introduction into some of the “Credit Score Models” that are in existence today.  Some of the better know models are the Consumer Models also know as Educational Models, Collection Models, Bankruptcy Models, Auto Models, and the one that those of us in the Mortgage and Real Estate industry are most concerned with the Mortgage Models.  In this Post I want to go a little more indebt into the two models that most affect the Mortgage and Real Estate Industry, Consumer Models/ Educational Models, and Mortgage Models.

How many times have you heard a Borrower, or Buyer blame a Loan Officer for having significantly lowered their Credit Score because they pulled a new Credit Report on them?  They are convinced that the lower score is the Loan Officer’s fault, because when they ran their own Credit Report it was 30 to 60 points higher.  Therefore the Loan Officer has to be at fault, that is the only explanation that they can see for their Scores dropping that much.  It is understandable for a Borrower or Buyer to feel this way, however, they are incorrect.  Credit Scores do not drop by huge amounts just because a Loan Officer pulled a new Credit Report, in fact the change is minimal if any at all.  The reason for the difference is because of the different Credit Report Models that were used by the Borrower/Buyer and the Loan Officer to pull the Credit Report.

When someone pulls their own Credit Report through one of these “Free Credit Report Sites” the model that is used is a Consumer Models/Educational Model.  But when a Loan Officer pulls that same persons Credit Report the model that is used is a Mortgage Model.  Even though the information used by  these two models is the same, the weight that is given to each “Trade Line” is different.  A Mortgage Model is going to place a higher weight on “Trade Lines” that have a greater impact on a mortgage then a Consumer Models/Educational Model will.  Also a Mortgage Model will be more conservative in its Scoring than a Consumer Models/Educational Model.

There can also be a big fluctuation in Credit Scores even between the three major Credit Reporting Agencies Equifax, Experian, and TransUnion.  The reason for this is because not all Creditors report their information to all three Reporting Agencies, so a Reporting Agency might be basing its score on incomplete information.  Even when the information is the same the Scores are slightly different, because each one used a slightly different formula in arriving at their score. 

It is also not unusual to see a Creditor reported on more than one Trade Line.  For example Equifax, and Experian might be reporting on the same Trade Line, but TransUnion on a separate one.  One of the main reasons for this is that Equifax, and Experian might leave out the last four digits of an account number, while TransUnion might show the whole account number or even just the last four digits.  The Credit Limits and Balances will be the same, but the account number will appear differently.  So since the account number is not being reported exactly the same by all three, it will show up on the Credit Report in more than one Trade Line.  To someone who does not know this it will appear to be a duplicate amount on the Credit Report, when in fact it is not.

There is a major effort under way to correct the discrepancy in Scores between Reporting Agencies, by implementing a system by which all three major Reporting Agencies will use one scoring formula.  This new Scoring system is known as VantageScore, and has been under development since 2005.  VantageScore will have many advantages over the present Credit Report System, because VantageScore will be more consistent, and easer to understand.  I will discuss VantageScore in more detail in my next Post.

I hope this Post has helped to clarify some of the mystery surrounding Credit Scores and Credit Score Models, as well as eliminate some of the myths about the cause for the fluctuations in Credit Scores.

 

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Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Rainer
99,630
Kaushik Sirkar
Call Realty, Inc. - Chandler, AZ
I've certainly been educated....or at a minimum I have a nice location to refer folks with similar questions!
Feb 27, 2007 02:17 AM #43
Anonymous
Anonymous
Ashok

Excellent article.  I have been trying to research credit scores and your article was great.  I pulled it from FICO and did not get Transunion.  The difference was almost 50 points between the two agencies, even though I do not have a single negative entry and from the same FICO website.  Yes one agency had more records than the other, but such a large difference?  Is one agency usually better than another?  Also, even though they claim to ignore multiple inquiries at the same time, all show up in the credit report?  How do we know what they are ignoring? What if the same creditor makes 3 inquires outside the 14 day window (0ne while approving the loan and before paying for it"?   

 Also, I wanted overdraft protection and my credit union wanted to pull a report.  I wanted to get an insurance quote and they wanted to pull a report?  How do these inquires matter?  If all I want is emergency short term protection, not a real loan (I had suggested they link it to my money market account but the credit union insisted that they will not offer a loan facility).  For example, when I want an insurance quote, I am not asking for credit but is it still an inquiry?  Everyone wants to pull your credit history today but it seems that it will affect us?

Mar 22, 2007 11:04 PM #44
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
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Ashok, yes you don't want your credit pulled unless it is really needed to be pulled, but each pull that is not bundled does not have very much of an impact on your credit score.  Where that becomes important is if your score is borderline and it gets pulled, then the one or two points could make a difference.

As far as the differences between the three major credit reporting agencies, it isn't that one is better than the other, it depends on how they receive the information.  For example they do not all get their information at the same time.  I had a report I ran yesterday that Transunion had already received information on a late payment, but the other two did not receive it or were not reporting that yet.  As a result the Transunion score had gone way down, while the other two stayed the same.

No one knows the formula that each major reporting agencies uses, we have a good idea, but they are the only ones that know it, and it does vary between each one. 

Mar 23, 2007 09:02 AM #45
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George Souto
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Kaushik, some how I missed you comment.  I am glad that you feel that this can be a good resource for you.
Mar 23, 2007 09:03 AM #46
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"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Mortgage George...

I am learning so much from this post. I just thought you would want to know that.

According to the studies I've done <smart> people learn something new everyday. Thanks for helping me with that goal.

TLW...ROAR!

Mar 24, 2007 10:15 AM #47
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
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TLW, I try to learn something new everyday, but sometimes it seems like I have to forget two things in order to learn one new one.....LOL

Glad I could be of help in you goal!!! 

Mar 24, 2007 07:42 PM #48
Rainmaker
295,234
Ray Saenz
United Property Brokers, Inc - Aurora, CO
Homes for Sale in Aurora, Colorado - Aurora, CO

George,

Very well explanation, you could not do it better :)

Now, you are seeing that I am reading your blogs uh ? ,  sorry for delay, but there are a lot and now it is your turn, and remember that I was away for a while, so just imagine who many blogs I missed and also there are new rainers that I missed too.,

 

 

Mar 27, 2007 01:15 AM #49
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
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Ray, that is a big goal to try to read that many blogs.  I just try to keep up with what ever ones are Posted that day.
Mar 27, 2007 06:28 PM #50
Anonymous
Anonymous
Jack Payne
What many people don't realize is that the credit bureaus are not required to comply with fraud alerts--therefore there is only a 50% compliance level hit. --Jack Payne www.sixhrs.com
Jun 16, 2007 09:08 PM #51
Anonymous
Anonymous
Mrs. Miranda

Okay, this may sound complicated, but maybe you can help.

We are trying to buy a house and our credit was not good. We recently paid off 4 different collections, and I sent paid in full letters to all three companies. EX EQ TU

Today I ran a 3 in 1 credit check, through transunions page...I think it was true credit, because I recieved a letter from them with my report saying that the accounts had been updated.

The scores the reported were...TU 647  EQ 588  and EX 575 which it didn't report EX or EQ as updated yet.

Then in the mail I got a notice from experian saying that they had updated the accounts, which they did, but they forgot one so I go to the website listed on the report they sent me and punch in the number on the report, I dispute it and it asks me if for 5.95 I want to see the score on this report. I pay for it and it says the score is 719???

When we had a lender check our score about 2 months ago the middle score was 604. Of course we are trying to get to 620.

 Why did the transunion site report the score for experian as 575 and the experian site report it as 719 on the same day? I am confused and I don't know which experian score to believe?

 Also, the equifax site is reporting his score as 612, but the TU said it was 588??

Can you give me some insight??

 

 

Jun 20, 2007 12:34 AM #52
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
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Mrs. Miranda, I sent you an e-mail on this please let me know if you received it.
Jun 20, 2007 08:40 AM #53
Rainmaker
1,076,196
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

George -- thanks for taking the time to explain this.  I find this area quite confusing -- It also is very difficult to fix a mistake -- I have had a few clients have a terrible time working to correct information (e.g. similar or same name - but not their debt).  Is there some type of reform to help consumers clear thing up faster! 

Jun 20, 2007 09:00 PM #54
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
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Joan, I can show them how to raise their Credit Scores, but when it comes to correcting mistakes I connect them with the Credit Dispute Department for my Credit Report Company and they are excellent at correcting mistakes and adjusting scores within 30 days.
Jun 20, 2007 09:35 PM #55
Anonymous
Anonymous
Mr. D. Owen
Hello,I am so glad I found your post,I've been getting so aggravated and frustrated with buying a house,I'm just about ready to buy a house on contract,I bought my first House 12 years ago in Florida,after finding the house I wanted it was exactly 2 weeks until I signed the papers and moved in,after the 3 Hurricanes we had a couple of years ago my Homeowners Ins.jumped to almost $500.00 a month and I've never had a claim so I sold my house in March 07,and moved back to Indiana,now mind you when I bought my house in Florida I had no credit,I only put 3% down on a $110,000 dollar house no questions were asked,I thought wow why does everybody complain about getting a mortgage,I guess I was lucky until I found out what 10.5% Interest was!!after 7 years I Refied to 7.2%,well anyway I'm back in Indiana,after searching for 2 months a finally found a house that I want.They excepted my offer for $52,000.00 and I'm putting $20,000.00 down on it,after just moving after 23 years in Florida now I don't have a job yet,I just wanted to buy a house get settled and then start job hunting,,so I was wanting to do a NO-DOC mortgage,well I pulled my own credit report,714,716,724,everybody said that was pretty good and said I shouldn't have any problem with getting a mortgage and with the amount of money I was putting down,so when I went to the Mortgage company for the loan they pulled my credit report they said it was(and sent me a letter)686,688,690,,and the amount of credit history was to short,,I bought my House 12 years ago!!and I have no Montly expenses except a $50.00 credit card payment,but in order to qualify for the NO-DOC mortgage my scores had to be above 700 needless to say I was very ticked off,,because now I feel like there trying to screw me for more money or points or Interest before they pulled my credit report they said my Interest rate would be 7.5% 30year fixed,now I have to show employment records for now and the last 2 years in Florida,,for a different type of Mortgage .I already had my termite Inspection last week and the appraisal is scheduled for Monday,My contract says we need to close in the next 2 weeks,or redo the contract,so I've been fighting with the Mortgage company about this credit score,because I don't have time to look for or get a job,should I keep fighting or look for a different mortgage company or have them explain why there scores are so much lower than mine,,,any advice you could give would be greatly appreciated,,,o'yeah I found the House almost 2 months ago,I've been messing with this for 2 Months,I'm almost at the end of my rope,,,,Thanks
Dec 09, 2007 11:31 PM #56
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
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Mr. D. I do not think that the mortgage company is trying to pull anything over on you because there are always differences between the Credit Report that you pulled (Consumer Credit Report) and the Credit Report that Mortgage Companies pull (Mortgage Credit Reports) both will have different scores because they give different weight to things.  From what you are telling me the only thing that I can see that could posibly raise your score quickly is if you are near your credit limit on the credit card that you have and you pay it down to less than 1/3 of the limit.But I do think that you have a problem with a NO-DOC loan if you have to name an employer and state income, please read this blog  "Stated Income Borrowers Watch Out For the ....... 4506"  What you need is a No Income Loan, and the rates will be higher because it is a risky loan, after all you are saying that you do not have a job, and no income.

Your best bet in my opinion would be to take any job you can get, while continueing to look for the kind of job that you want (even a job at a fast food place).  You do not need to show much income in order to qualify for a $32,000 Loan and now you would not need to go "No Income", and the interest rate would be much lower.  Feel free to call me if you want to talk about this further.

Dec 10, 2007 08:09 AM #57
Rainmaker
298,491
Heather the Realtor Orlando, Lake Mary
LemonTree Realty - Orlando, FL
First Time Home Buyers, Bank Owned Homes
Excellent blog, it's still a great mystery how they pull their scores and why they are different. If you open new line of credit it wont hurt at first but when it's in months 6-12 it knocks you down til year 3. Ok not sure the exact equation when it comes to that but you get where I am going with it. No wonder a lot of americans have poor credit scores there is no simple and easy way. Your Orlando & Lake Mary Real Estate Expert, Heather Joubran
Dec 10, 2007 08:33 AM #58
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
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Heather it does seem to be a bit of a mystery, even after you think you have a good handle on it.  Thank you for your comment.
Dec 10, 2007 04:49 PM #59
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

George,

The current system needs streamlining and with that the consumer complaints against lenders would stop regarding these score discrepancies. The VantageScore is supposed to rival FICO one day, so let's see how it fares. Very useful info.

Dec 10, 2007 11:33 PM #60
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
Your Connecticut Mortgage Expert

Esko, I don't think that they will ever have the perfect system, but anything that would get all three agencies to use the same criterion in reporting their scores so that we do not have this discrepancy between them would be a major plus.

Dec 11, 2007 08:35 PM #61
Rainer
173,694
Dave Sullivan
www.TheCreditGuy.TV - Birmingham, MI
The Real Story on Your Credit Score - TheCreditGuy

Thanks for the information I think Credit Scoring will be with us for a long time.  check out a free website about credit scoring by a 20 + year FICO professional at www.thecreditguy.tv

Jan 24, 2012 09:26 AM #115
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