Why Your Lender's Credit Score May Differ From Yours

A credit score is a number that reflects a consumer’s creditworthiness and is used by creditors to understand how likely it is that the borrower will default on his loan obligation.

Before you apply for a credit card, personal loan, mortgage or auto loan, it is advisable that you check your credit score.

When you access this information, you’ll be able to gauge whether you will be approved for the loan, or whether you should try and improve your score before applying.

Having said that, when you finally apply for the loan, you may find that the score that you had purchased, and the score used by the lender are quite different.

The reasons behind the difference in credit scores

You may have purchased your credit score information from one of the three major credit bureaus – Experian, Equifax or TransUnion, from myFICO or any other third-party source.

However, be aware that the score you received is meant for educational purposes only – it is meant to give you an idea as to where your credit stands.

In most likelihood, you received a generic score, while the creditors use scores depending on the industry that they operate in.

For example, if you’ve applied for a mortgage, the lender is likely to use a score that’s modified to help him understand how likely you are to default on your mortgage application.

Secondly, you may have received a score calculated by a certain credit scoring model, while the lender is using a score from a different model.

While all scoring models pretty much use the same components for score calculation, the weightage provided to each factor often differs.

Thirdly, it may happen that your credit activity is not being reported to all three bureaus by your existing lenders.

While some creditors report credit activities to Experian, TransUnion as well as Equifax, there are others who report to just one or two bureaus.

So, depending on which credit report is being used to calculate your score, this numerical value may differ.

Finally, if it’s been a while since you purchased your credit score, then you may find that the creditor has a different value for your score due to variation in your credit report.

Credit score disclosure by lenders

Unfortunately, if the score used by your lender is even a few points below the one purchased by you, you may be denied credit, or you may not receive the loan terms that you were expecting.

Having said that, when such a thing happens, the lender is obligated to send you a copy of the score that was used to evaluate your loan application.

The best thing to do before applying for a loan is to check your report from all three credit bureaus and fix any errors or unauthorized charges you may find in the report.

Given that whatever your score may be, it is always calculated from the information contained in your report, following just this small step can in many cases ensure that your application is approved on favorable terms.

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