It is very helpful to know that credit scores will vary for several reasons, including the company providing the score, the data on which the score is based, and the method of calculating the score. And many people are surprised to find out they don’t have just one credit score.
Credit scores are provided by the three major credit bureaus — Equifax, Experian and TransUnion — may differ, because not all lenders report the same information to each bureau. While many do, others may report to two, one or none at all. In addition, the credit scoring models among the three major credit bureaus are different, as well as those used by other companies that provide credit scores.
It’s good to know that if you’re buying a car, an auto lender might use a credit score that places more emphasis on your payment history when it comes to auto loans. In my years of lending experience I have seen various lenders report to and only receive one report of from one bureau, while mortgage companies do go by and choose the middle score to base their underwriting decision.
In general, here are the factors considered in credit scoring calculations. Depending on the scoring model used, the weight each factor carries as far as impacting a credit score may vary.
- The number of accounts you have
- The types of accounts
- Your used credit vs. your available credit
- The length of your credit history
- Your payment history
Here is a general breakdown of the factors credit scoring models consider, keeping in mind there are many different credit scoring models.
When a lender or creditor looks at your credit report, a key question that they will want answered is how you’ve repaid your credit in the past. Your payment history may include credit cards, retail department store accounts, installment loans, auto loans, student loans, finance company accounts, home equity loans and mortgage loans.
Payment history will also show a creditor late or missed payments, bankruptcies, and collection information. Credit scoring models generally look at how late your payments were, how much was owed, and how recently and how often you missed a payment. Your credit history will detail how many of your credit accounts have been delinquent in relation to all of your accounts on file. So, if you have 10 credit accounts, and you’ve had a late payment on 5 of those accounts, that ratio may impact credit scores.
Your payment history also includes details on public information, bankruptcies, foreclosures, wage attachments and any accounts that have been reported to collection agencies.
Another factor lenders and creditors are looking at is how much of your available credit you are using. Potential creditors like to see that you are managing your use of, and keeping credit balances low, demonstrates this.
Different types of credit accounts you have, including revolving debt (such as credit cards) and installment loans (such as mortgages, home equity loans, auto loans, student loans and personal loans).
One factor is how many of each type of account you have. Lenders and creditors like to see that you’re able to manage multiple accounts of different types and credit scoring models may reflect this.
Amount of New credit
Credit score calculations may also consider how many new credit accounts you have opened recently. New accounts may impact the length of your credit history.
Length of credit history
This section of your credit history details how long different credit accounts have been active. This could be how long your oldest and most recent accounts have been open. Creditors like to see that you have a history of responsibly paying off your credit accounts.