Checking your credit score can help you prevent identity theft and improve your chances of getting a loan. While every citizen is entitled to one free credit report from each of the three credit bureaus each year, far too many people don’t take advantage of this opportunity.
To make matters worse, many only request a report from one of the three agencies, instead of all three.
Why One Credit Report Is Not Enough
Relying on just one single credit score service may do you more harm than good and will not give you a complete picture of your credit history.
There are three national credit bureaus: Experian, TransUnion and Equifax. Each reporting agency obtains its own information from its own sources. They do not share information, nor do they correlate data.
What does this mean for you as a consumer?
- Each credit bureau may obtain different information about your credit history
- Some creditors will only notify certain reporting agencies
- The three bureaus compete with each other, so the information may vary widely
- Your credit score will be different with each bureau
Some lenders do not notify all three reporting agencies, so false or inaccurate information may harm your score from one of the bureaus and not the others.
How Creditors Measure Your Credit Score
Lenders calculate a potential borrower’s credit score to determine how much of a risk they are. The riskier the borrower is, the higher the interest rate will be. In many cases, a person who is high risk will be denied for a loan or credit card.
There are several different credit scoring models available to lenders, but they each use information gathered from your credit history. Different models can produce different results, but there are some computing methods that are used more than others.
By far, the most popular credit scoring model is the FICO score. This is the scale that most people are familiar with and it ranges from 300 to 850. Most people will have a score that falls between 600 and 800. Scores of 720 or higher will allow you to take advantage of lower interest rates and improve your chances of being approved for a loan.
VantageScore is a credit scoring model that was created by the three major credit bureaus. When this score was developed, the goal was to create a consistent model that would be adopted by all three bureaus. VantageScore competes with the FICO score and attempts to take a more standardized approach to credit scoring.
VantageScore ranges from 501 to 990, and each score is also accompanied by a letter grade.
- 901 – 990 = A
- 801 – 900 = B
- 701 – 800 = C
- 601 – 700 = D
- 501 – 600 = F
The A-F grades are just like the grades you received in school. An “A” is excellent, while an “F” is very poor. VantageScore takes into account 6 different components to create their final credit score.
Credit scores are an accumulation of the information found on your credit reports. This includes:
- Your payment history. Whether or not you pay your bills on time will have an effect on your credit score.
- The amount of money you owe to lenders. Your debt ratio (how much you owe vs. how much total credit you have) is one of the largest components in your credit score. This section takes into account the type of accounts you hold and how many accounts you have.
- Length of your credit history. People who have maintained a good credit history for several years will have a higher score than someone who is just getting started.
Every time you have a credit check performed, it has a minor negative effect on your score.
Each credit bureau has their own credit scores.
- Equifax – ScorePower (FICO from Equifax) and Equifax Credit Score
- Experian’s PLUS Score
- TransUnion’s Credit Score and VantageScore
Because each bureau uses its own credit scoring model and their own set of information about your credit history, you wind up with differing scores from each reporting agency.
A true credit monitoring service, offers a Credit Check Total view of your finances and provides you with a 3 in 1 score.
The major advantage that these services offer is that they supply you with both your credit report and score. This provides you with all of the information you need to start improving your credit and disputing errors.
A 3 in 1 credit score takes into account information from all three agencies to provide you with a clearer picture of your financial situation. It serves as a total credit check to give you an accurate view of your risk as a lender.
A 3 in 1 score is similar to a trimerge report, but the two are not exactly the same. Trimerge reports are pulled by lenders once a borrower makes it past the pre-qualification stage. There are several companies that offer these reports, which are designed specifically for mortgage applications.
Credit monitoring companies that offer 3 in 1 scores pull information from Equifax, TransUnion and Experian. With information from all three bureaus, you can better monitor your credit and detect identity fraud quickly.
Monitoring services that do not use all three bureaus may leave you vulnerable. They also hinder your chances of improving your credit simply because you don’t have access to all the information in all three of your credit reports.