How Credit Works
Along with the credit report, lenders
can also buy a credit score based on the
information in the report. That score is
calculated by a mathematical equation that evaluates
many types of information from your credit report at
that agency. By comparing this information to the
patterns in hundreds of thousands of past credit reports,
the score identifies your level of future credit risk.
In order for a FICO score to be calculated on your credit
report, the report must contain at least one account which
has been open for six months or greater. In addition, the
report must contain at least one account that has been
updated in the past six months. This ensures that there
is enough information—and enough recent information
—in your report on which to base a score.
ABOUT FICO SCORES
Credit bureau scores are often called “FICO scores”
because most credit bureau scores used in the US and
Canada are produced from software developed by Fair
Isaac Corporation (FICO). FICO scores are provided to
lenders by the three major credit reporting agencies:
Equifax, Experian and TransUnion.
FICO scores provide the best guide to future risk based
solely on credit report data. The higher the score, the
lower the risk. But no score says whether a specific
individual will be a “good” or “bad” customer. And
while many lenders use FICO scores to help them make
lending decisions, each lender has its own strategy,
including the level of risk it finds acceptable for a given
credit product. There is no single “cutoff score” used by
MORE THAN ONE FICO SCORE
In general, when people talk about “your score,”
they’re talking about your current FICO score. But
in fact there are three different FICO scores developed
by Fair Isaac—one at each of the three main US
credit reporting agencies. And these scores have
The FICO scores from all three credit reporting
agencies are widely used by lenders. The FICO score
from each credit reporting agency considers only the
data in your credit report at that agency.
Fair Isaac develops all three FICO scores using the
same methods and rigorous testing. These FICO scores
provide the most accurate picture of credit risk possible
using credit report data.
WILL YOUR SCORES BE DIFFERENT?
FICO scores range from about 300 to 850. Fair Isaac
makes the scores as consistent as possible between the
three credit reporting agencies. If your information were
exactly identical at all three credit reporting agencies,
your scores from all three would be within a few points
of each other.
But here’s why your FICO scores may in fact be
different at the three credit reporting agencies. The way
lenders and other businesses report information to the
credit reporting agencies sometimes results in different
information being in your credit report at the three
agencies. The agencies may also report the same
information in different ways. Even small differences
in the information at the three credit reporting agencies
can affect your scores.
Since lenders may review your score and credit report
from any of the three credit reporting agencies, it’s a
good idea to check your credit report from all three and make sure they’re all right.