Why Is My Lenders Credit Score Different Than The One I Got Online?
The Costa Mesa credit bureau Experian was recently asked to pay a $3 million fine to settle claims that the firm sold credit scores that were completely useless to consumers.
The Consumer Financial Protection Bureau said that Experian offered its own score to consumers and mislead them by implying that these scores were “the same type of information lenders see when assessing your credit.”
Tens of thousands of consumers had educational scores that were much higher or lower than the scores that were used by lenders. This basically meant that the consumers were given scores online which were different from the ones used by their lenders.
Why does this matter?
This is a common issue that affects many people. Let’s consider a scenario. You spend several months saving for a down payment on a car. So you pull out your credit report, look up your credit score and visit the dealer hoping to get a loan at the best terms.
You think your credit score is good, but when you are offered financing, it is not at the rate expected by you. The credit score pulled by the auto lender was MUCH different to the one that was accessed by you.
Why are the scores so different?
Lenders generally use a different credit scoring model to estimate the risk. They use credit scores that are weighted according to the needs of their industry. This means an auto lender can use a different scoring model than one used by a mortgage lender. The lender could also use a combination of the scores assigned to you by the three credit reporting agencies.
Educational Credit Score
The difference between the score that you pull out and those used by lenders is that you get only an educational credit score. This is given to you to give you a good idea of your credit standing. This may not be the same score used by lenders when they process your application.
Also, the credit score you get is a generic one; that covers all types of credit products. Lenders use credit scores that are customized as per the requirements of their industry or the type of credit product being applied for. This is a big difference.
The discrepancy could be high enough to prevent you from getting the best interest rates or even get your application rejected.
However, if the lender were to deny your application because of the credit score, or grant you less favorable terms, they are required by law to send you a copy the credit report used by them. So this would give you a good idea of the difference between the lender’s credit score and the one you were able to access online.
This always confused me. I knew that different companies pulled different numbers but I never understood what the point of this was. About a year and a half ago I was able to get a small credit line to get a car but they used numbers that showed my score was better than what I was previously told. I guess they do this to benefit the person so they can have more options.
Actually, depending on what type of credit you are applying for, your credit score can be different. Like for our business loans, we give more “weight” to the length of credit history and comparable credit’. While historically car lenders look at comparable credit and installment loan debt. Even if your overall score is bad, but you have strong installment debt and a long credit history. The credit report the car lender gets will reflect that and give you a higher score.
I know, a little confusing 🙂