This might come as a surprise, that you have different credit scores from different credit agencies. You may have tried from Borrowell & Credit Karma or even requested from Equifax or TransUnion to verify your credit scores, only to discover that each of them give you different results. How do we know which credit score to believe? More importantly, which credit score will the bank consider when you apply for a loan? After all, that number could spell the difference between whether or not your loan gets approved, how much time you have to pay it back, and at what interest rate.
Before we proceed, what exactly is your credit score? Legally speaking, your credit score is a number that expresses your credit information at one point in time. This number indicates the risk you represent to lenders compared to other potential borrowers, measured on a scale of 300 to 900. The higher the number, the better for you.
That credit score represents a lot about you and defines what lenders would be willing to lend you, if anything. A low credit score represents someone who has a high risk of defaulting on their debts, making them less likely to give you a loan. A high credit score, on the other hand, can give you a wide latitude to borrow money from lenders because they are confident that you pay regularly, on time, and completely.
Most Canadians can access their credit scores for free through online banking. Any of Canada’s major banks allow you to pull your credit score without any cost and covers the vast majority of banked Canadians.
Beyond that, there are four popular sites for checking credit scores. Two of these sites, Credit Karma and Borrowell are free, while the other two, Equifax and TransUnion charge on a monthly basis for credit monitoring, which also gives you access to your credit score. As demonstrated in the link, with 4 different sites, people received 4 different results. Similar scores seem to be evaluated differently by different sites, with one site labeling a score of 650 as “poor” while another site labels it as “fair”.
Let’s take a look at these options a little more closely.
If you want to get your credit score updates through Credit Karma and Borrowell, know that Credit Karma pulls your score from TransUnion while Borrowell gets your score from Equifax. From there, they compile their own interpretation of your score based on the information they’ve acquired. This paints a very helpful starting point for what your credit score is. If your credit score is in the “good” to “very good” range, even with the differences between credit bureaus, you’re likely to find your credit score to be well within the same range, just with a slightly different number.
Of course, there are always outliers, but this is exactly why the range is the more important piece of information than the actual number you have: a range has more leeway, and thus, less room for outright error. If your range is better than a “fair” rating, then that should already be a good sign to you.
Equifax and TransUnion, on the other hand, usually require you to pay a monthly subscription to get access to their services. That being said, it is possible to get a free copy of your credit report from them if you go through the proper avenues. These two options otherwise require you to pay around $20 a month.
Putting all that into consideration, what accounts for the difference in score between these sites, exactly?
There are several reasons why different sites provide you with different credit scores. Chief among those reasons is that they weigh the factors of your credit score differently from each other. Consider, for example, the factor of paying your credit card bill on time.
We know that paying on time will always increase your credit score, but by how much differs from website to website. The algorithms utilized by each website are proprietary to them, and yield different results.
Another important consideration is time. Equifax, for example, uses an 81-month credit history. In contrast, TransUnion looks at data across 24 months.
What else accounts for the difference? Quite simply, who reports to whom. Some lenders report to one of the credit bureaus but not to both. This would update your score with one of them, but not the other. With these differences, it should be clear why each website can provide you with different scores.
No matter what the differing credit scores might say, it’s universally accepted that certain actions can only positively affect your rating. These actions are:
On top of that, managing your credit usage by only utilizing about 35% of your total credit limit, while having a lengthy active credit history with minimal credit inquiries can only help improve your score. It’s a bit counterintuitive, but to prove you can handle larger loans, you need to demonstrate not just your ability to pay, but that despite using credit from time to time, you aren’t living well beyond your means.
Having a great credit score doesn’t guarantee you get the lowest interest rates, but understanding your credit score could help you decide on what offer to choose or even work on your credit before applying. Once you’re in a “very good to excellent” range, you won’t see much of a difference on loan and mortgage rates, but moving from 650 to 700 will likely have a more significant impact.
Performing the actions you need to keep your credit score high can’t possibly hurt your credit rating, so focus on what is under your control, and eventually, your credit score will get to exactly where you need it to be.
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