You may notice a significant difference in your credit score when you look at your credit reports. It's not necessarily an indication of bad behavior or financial distress. However, there are a few reasons why your score could be a bit higher or lower than it should be. 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.
There are a variety of different scoring models used by different credit reporting agencies. Each one weighs information differently. FICO is the most commonly used scoring model. Other models include VantageScore, which uses more data to calculate a score.
The Consumer Financial Protection Bureau recently found that creditors can give consumers significantly different scores. This is due to companies not reporting to all three of the main credit reporting agency (CRAs), in the United States. That's because CRAs use different scoring models and rely on different types of financial data.
A Dodd-Frank Act-related study led to a series of studies by the Consumer Financial Protection Bureau that examined the various differences in credit scores, and other similar functions. These studies weren't intended to prove that credit rating agencies purposefully try to fool consumers, but the results were quite surprising.
The most basic credit scoring system is called FICO. This is the score you will likely see in most credit reports. The score represents your credit history, usage, or other information that helps lenders assess whether you are a high-risk borrower. Creditors regard the score as a measure for your risk of not being able to pay off your debt. It will vary from one bureau.
A similar scoring model is called VantageScore, which focuses more on how you've made your credit cards and loans over time. The scoring model uses a series of factors to weigh your credit history, including the length of your credit history, recent payments, and the types of debt you carry.
It is interesting to see the differences in credit scores between rural and urban consumers. Although both have the same credit rating system, the average credit score for the former group is much lower. The local economy and the population may influence these scores. People living in metropolitan areas tend have more positive credit behavior and are generally more financially stable.
Consistency in your reporting is the best way to increase your score. If your creditor fails to report your credit limit to all of the three credit bureaus, you should contact them. While they will be able to correct the error quickly, it is possible for some time.
There are many other factors that could affect your score. Check your credit report to make sure there are no errors such as incorrect names, loan amounts and credit cards.