DIFFERENCES BETWEEN CREDIT SCORE REPORTING SYSTEMS
Working at the Credit Union, we’re often asked about credit scores. Members ask how they can increase their credit score, what factors go into a credit score, and quite frequently, why is there a difference between their credit scores when they check it on CreditKarma versus when the Credit Union pulls it when applying for a loan.
These are all very good questions, and we have good answers for all of them. Since the most asked question these days is about CreditKarma, we’d like to share with you what we know about the difference between CreditKarma and the other credit reporting companies.
First, it’s important to know that there are three major credit bureaus in the United States: TransUnion, Equifax and Experian. Creditors, like banks, credit unions, credit card companies, mortgage companies, landlords, and other places that you might owe money to, pay money to the credit bureaus to report your payment histories. However, not all creditors report to all three of the credit bureaus since it does cost them money to do so.
It’s common for East Coast creditors to report mainly to TransUnion, for West Coast creditors to report to Experian, and for creditors across the country to report to Equifax. So you can see right there why you would receive different credit scores from each credit bureau.
Now stay with us…CreditKarma.com is a for-profit website that allows individuals to access their credit scores for free. That sounds great, but CreditKarma uses a scoring system called “VantageScore 3.0.” VantageScore 3.0 only pulls information from TransUnion and Equifax. If you have a creditor who reports your information (good or bad) only to Experian, VantageScore 3.0 won’t know about it.
When you come to the Credit Union, we use the FICO scoring system. FICO is the financial industry standard as it looks at all three credit bureau reports, throws out the high and low scores, and uses the middle score as your credit score. That way, all possible creditors can be accounted for. At Ironworkers USA Credit Union, we use the latest FICO 9 version of the system. With FICO 9, things like unpaid medical bills won’t ding your score as much as, say, unpaid credit card bills. That’s because medical bills are often out of your control. No one has a habit of going to the emergency room for surgery like they might have a habit of going on vacation or buying the latest gadgets.
CreditKarma is a good resource for monitoring your credit for fraudulent activity or inaccuracies, but when it comes time to apply for a new credit card, mortgage or loan, it’s important to pay attention to your FICO score.
If you have questions about your credit score or how to improve it before applying for a loan, give us a call at 1-877-769-4766 or stop in to one of our branches. We’re here to help you make the most of your financial life!