Learning more about your credit score is never simple. There’s the weird scale (like some wonky medieval form of measurement, it starts at 300 and goes to 850). There’s the whole scare about whether even checking your goddamn credit will damage your score. There’s also the fact that there’s three different scores. Come on! Stop this madness!
So why are there so many credit scores? Are they very different? Is there actually anything good about having multiple bureaus giving everyone different scores? Alongside Brian Walsh, a certified financial planner with SoFi, a personal finance company, we applied for some answers.
Okay, why are there three credit bureaus? Why can’t they make anything easy about this?
First, Walsh feels your pain — the institutions don’t make it at all easy to understand. But the reason these credit bureaus — TransUnion, Equifax and Experian — came to be is that they generally started as regional bureaus, then, through mergers and acquisitions, grew to be nationwide, and all operating in a similar space. And by the way, there are a few others, but they’re smaller, and operate in niche areas, and most people never interact with them, according to Walsh.
Basically, they all do the same thing?
Pretty much, yeah. They gather your personal information and financial data, then crunch a bunch of numbers and come up with your FICO score or VantageScore, a newer system, both of which are based on that scale of 300 to 850. What these bureaus are each doing is providing predictive analytics to banks, lenders, landlords, employers, etc. that allows these institutions to understand the risk of lending a certain person money — or more specifically, to gauge the chances of that person not paying the lender back. From that they can adjust the principal and the interest rate accordingly.
Why do we need three of them to do this job?
“At the end of the day, it’s similar to a lot of industries where having three makes things a little more complicated, but ultimately they’re competing against each other — and that competition can drive innovation, it can improve quality and overall be a better experience for both the lenders who use the data and the consumers to understand their overall finances,” Walsh says.
So it prevents a monopoly, kinda?
Yeah — and what a powerful monopoly that’d be! Imagine how influential a single credit bureau would be, how even less consumer friendly it’d probably be and how difficult it’d be to correct any errors on your credit report, advises Walsh. “A lot of people uncover mistakes that come up when they look at the different bureaus, so if you only had one it’d make that a lot more challenging,” he says.
Do all three credit bureaus know all the same stuff about me?
Yes, but to slightly varying degrees. Most lenders only contact one bureau to learn more about you. The exception is mortgage lenders, which engage all three. But in any case, the reports maintained by each bureau may vary slightly in the amount of detail they have, or, timing-wise, some might have more information about recent activity of yours sooner than the others do.
But you tend to end up with the same score no matter where it comes from?
Not necessarily. Barring an error in their info about you, they also use different models to come up with your credit score. VantageScore was created by the three of them about a decade ago to compete with FICO (created by Fair Isaac Corp. … get it?). What we’re talking about is two different methodologies for judging someone’s ability to pay back a loan, based on the same data. They arrive at different final numbers because they weigh things differently, such as late payments on credit cards versus late payments on mortgages. Same with credit inquiries (like opening too many credit cards at once).
So there are two different kinds of scoring systems?
No, actually there are dozens: FICO, for example, has up to 50 different variations, depending on the use (auto loans, etc.). VantageScore has many different variations as well. That clears things up, doesn’t it?
Is there anything actually good about having this confusing assortment of credit bureaus whose scores sometimes conflict with each other?
Sort of. Walsh says that when Equifax, TransUnion and Experian developed VantageScore, it expanded the ability for people to have a credit score beyond the people who were being scored by the FICO models, because people who have a shorter history of credit could get a VantageScore rating, whereas they couldn’t with a FICO model. This has allowed many people to access credit sooner.
“I don’t know if you want to call that a social good, but it certainly impacts the lives of people who now have a score who didn’t have a score under prior models,” Walsh says.
I imagine credit bureaus are pretty profitable enterprises?
Well, let’s see. TransUnion made $2.656 billion in 2019, a 15 percent annual increase. Experian made $5.179 billion in its last fiscal year, a 9 percent annual increase. And Equifax made $3.5 billion last year, a 3 percent annual increase.
All that money to tell banks whether a customer is gonna be a bum or not?
Yep. That’s America these days. More than 189 million Americans have credit cards, and the average person has four of them. Each household with a credit card carries $8,398 in credit card debt. The total U.S. consumer debt is $13.86 trillion, which includes mortgages, credit cards, student loans and auto loans.
Best to have a good score then, huh?
Yes — and Walsh recommends people not obsess over trying to juice their score with tips and tricks, and instead focus on responsible behaviors that will improve your credit score anyway. (One caveat: If you’re looking to, say, buy a home in several months, then it’s worth trying to boost your score in the short term.) Because in the long run, good financial management will keep you in the black, and by doing that, your credit score will take care of itself — no matter which of these bureaus is scoring you.
Adam Elder
Adam Elder is a writer in San Diego. He's also written for Esquire and WIRED magazines, VICE, The New York Times, The Wall Street Journal, The Guardian, newyorker.com and elsewhere.
