When looking at your credit report, you may notice a large difference in your score. It's not necessarily an indication of bad behavior or financial distress. There are some reasons your score might be higher or lower than you should. In most cases, errors in reporting and/or misinformation are the root cause of any differences. Any errors can be fixed by working directly with either the creditor, or the credit bureau.
Credit reporting agencies can use a variety different scoring models. Each model weights information differently. FICO is the most popular scoring model. VantageScore is another model that uses more data to calculate scores.
According to a new study from the Consumer Financial Protection Bureau, consumers can get significantly different scores from creditors. This is largely due to the fact that some companies do not report to all three of the nation's main credit reporting agencies (CRAs) at once. The reason is that CRAs use different scoring systems and rely on various types of financial data.
A study by the Dodd-Frank Act prompted the Consumer Financial Protection Bureau to perform a number of studies that explored the various differences between credit scores and other similar functions. Although they weren't specifically intended to determine if credit rating agencies were intentionally trying to trick consumers with their scoring systems or not, the results were quite revealing.
The most basic credit scoring system is called FICO. This is the score you will likely see in most credit reports. Generally, this score reflects your credit history, usage, and other information that helps lenders decide if you're a good or bad risk. Creditors consider the score a measure of your likelihood of not paying your debt. This score can vary from one bureau to another.
VantageScore has a similar scoring method. This model focuses more heavily on how much you've borrowed and used credit cards. The scoring model weighs your credit history using a range of factors including your credit length, recent payments and the type of debt that you have.
The most striking difference in credit scores between urban and rural consumers is the one that's most surprising. Despite having the same basic credit rating system as the other groups, the average credit score in the former is significantly lower. These scores may be affected by the local economy or population. Urban areas tend be more financially secure and residents in metropolitan areas have better credit habits.
A consistent reporting pattern is one of the best ways to improve your score. Contact your creditor if they fail to report your credit limit on all three credit bureaus. The credit bureaus should be able and willing to correct the mistake, although it may take some time.
Your credit score can be affected by other factors, such as credit card accounts that are not reported to credit bureaus. Check your credit reports for errors.