Is there a one true credit score

Posted by Tom Blandford in Credit Score on 8 September 2016 - Tom is a Credit Analyst at checkmyfile

When applying for credit, lenders will calculate your credit score using elements of your application as well as your credit files to determine if the risk of providing the credit is within acceptable levels. Lenders will all calculate your credit score differently as the criteria for lending will differ from lender to lender. This is because each element of your credit file is valued differently by each lender – where one lender may decline your application based on the presence of some negative historical information, other lenders may deem it old enough to be irrelevant to your current ability to maintain credit agreements.

Because of the complexity of credit scoring, many lenders use commercial scorecards such as the FICO (Fair Isaac co.) or Delphi (Experian) scorecards to calculate credit scores without the need to develop their own scorecards. As a result, the specifics of commercial scorecards, and how they are used to analyse credit files, are incredibly valuable to their creators and therefore are closely guarded secrets of the risk management industry.

Credit reporting agencies can also provide their own credit scores, so these scores will vary from a score that might be calculated by a lender. Similarly to commercial scorecards, these scores emphasise different elements of a credit file aiming to indicate how an average lender will perceive them and therefore each credit reporting agency will provide a different score. In addition, even the credit reference agencies who provide the information to lenders provide different scores to consumers as it is only the raw data from credit files provided to lenders, rather than the actual score.

Credit scores can also vary depending on the credit reference agency that has supplied the information - an account that has been reported to Equifax may not have been reported to Experian or TransUnion for example and will therefore only be a factor when the score is calculated using Equifax data. This is because lenders are not legally obliged to report information to all of the credit reference agencies.

Ultimately, credit scores are an extension of probability theory - with many organisations each confident that their scorecard best represents how a credit file should be viewed, it is extremely unlikely that there will ever be a universal scorecard. It is therefore important to keep in mind how scores can vary depending on their sources. Having said this, significant differences between scores can sometimes indicate errors in the information reported to each credit reference agency, so it is equally important to keep an eye out for any discrepancy between data reported to multiple agencies when monitoring your credit files.

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