A credit score is not just any number. This three-digit figure is what lenders use to assess a potential borrower’s creditworthiness. In the case of car buyers, specifically those who intend to finance the auto purchase, this number is crucial. This will dictate whether they qualify for financing and what rate they will get.
While each car buyer knows about the importance of his or her credit score, he or she may not be aware that there is more than one credit score for each person. The idea of having multiple scores is bound to confuse any potential vehicle owner.
Decoding Credit Scores
A credit score is determined by information regarding a person’s history of borrowing and repayment as reflected in the credit report. These information are collected by credit bureaus. In the United States, there are three credit bureaus: Equifax, Experian and TransUnion. While all three credit reporting agencies collect the same kind of information, there will be differences in the report from each of them.
Not only do credit bureaus have different ways of recording and displaying credit information, but one may capture information that the two others miss. This is where the differences in credit scores begin.
Three Credit Bureaus, Different Credit Scores
The most widely used score is the FICO score. The Fair Isaac Corporation created the first credit scoring model in the 1970s. The FICO score is calculated using a mathematical equation that takes into consideration the different types of information in the credit report. FICO scores range from 300 to 850.
The three credit bureaus have adopted the FICO algorithm to develop their own scoring models. Though the models were created with the same methods as that of Fair Isaac, the scores are different. Equifax offers the Beacon score (for other businesses) and ScorePower (for consumers); the score range is 300 to 850. Experian has a PLUS Score, which ranges from 330 to 830. Meanwhile, TransUnion has Empirica, which ranges from 300 to 850.
All three credit reporting agencies offer yet another score aside from the aforementioned—VantageScore. The VantageScore range is 501 to 990, and the scores are assigned a letter grade (A to F).
Credit bureaus gather the same types of credit information, but their reports will not be identical. They don’t share information, so they cannot verify if they get all the details they need. One lender may report to one bureau but not to the two others, resulting in a difference in scores. For instance, negative information may be found in the Equifax report, but not in the Experian or TransUnion reports. Thus, the Equifax score will be lower than scores from the other two agencies.
Credit Score Tips for Car Buyers
Car buyers need to pay attention to their credit scores because these are important for auto financing. But with so many credit scores out there, which one should they focus on? If you are a car shopper, here is something to keep in mind: rather than monitor all scores, focus on just one. Pick a particular score and monitor how it changes over time.
Here is another thing we at Colorado Springs Auto Approval Center wants you to know: credit bureaus often commit mistakes and these mistakes are often costly for consumers like you. In a study by the Federal Trade Commission (FTC), it was found that one in four consumers had errors in their credit reports that could cause them to pay more for loans. Errors can decrease your score, and a lower score will get you a higher rate.
It is therefore important to pull your report frequently to check for discrepancies. Since you are entitled to a free report from each agency every 12 months, you are encouraged to pull your report from a different bureau every 4 months. Don’t forget to check your report for discrepancies before you apply for an auto loan.