Have you recently looked at your credit score in two different places and found that they are different? You may have seen a point difference of close to 100 points in some cases. Credit can be very confusing, not to mention frustrating when you see huge differences among reports and you don't have a clear understanding of why they differ. Hopefully this blog post will help you understand and navigate some of the confusion that surrounds credit.
The first thing to understand is that there are hundreds of different algorithms that are used to calculate credit scores. Right off the bat, this can make understanding your credit score extremely confusing. While you don't need to understand all of the different algorithms to understand your report or score, there are a few concepts worth understanding.
To get you started it is important to understand, that in most cases, different industries tend to use different scoring models to determine your credit-worthiness. For example, a mortgage lender will use a different score than an auto dealer, who will use a different score than a credit card company and the list goes on.
Now that you understand that different lending institutions and industries use different scores, it's helpful to understand why those scores are different (considerably in some cases). The reasoning behind the point differential is the scoring model itself. Each scoring model will weight certain items differently than another scoring model will. For example, a mortgage late payment will affect your FICO score (what mortgage lenders use) much more than it will your Vantage Score (Score 8, typically used on free sites like Credit Karma). This is exactly why you might look at your score on Credit Karma and think that your score qualifies for a mortgage loan, but when you meet with the mortgage lender, your score is substantially different.
The biggest complication that seems to arise out of multiple scoring models is the confusion they all create for the consumers. We've all seen the commercial for Credit Karma that shows the real estate agent showing homes to a couple and telling them they qualify by looking at their credit scores on the Credit Karma app. Not only is this extremely misleading, but it also sets false expectations for everyone.
When it comes to understanding, fixing or optimizing your credit report and scores, it is best to either seek professional help to interpret and translate exactly what you're dealing with or do your due diligence and research before taking action. Credit is not as intuitive as you might think. For example, it may seem like paying off an old collection account couldn't do anything but help your credit score, right? Not always the case. In fact, sometimes it can hurt your score.
If you're looking for help with your credit, TruPath Credit can help in many different ways. Whether you're looking for an action plan on how to reach a specific credit score or have negative items that need to be disputed, they can help with plans starting as low as $29 month.
