Not all Credit Scores are the same. Anyone taking advantage of the increased access to free credit scores will soon realize that credit scores vary depending on the source. In September 2013 FICO changed its policy and began allowing lenders to share credit scoring data with consumers under their Open Access Program. Prior to this time, credit score information was considered confidential.

This policy change has provided free credit scores for millions who are now able to use this data to improve lending opportunities and reduce costs, where credit scores are used in decision making.

How Credit Scores Are Determined

There are three credit bureaus, which gather information about how you pay your bills. The credit report gathers information such as payment history, length of time an account has been open, credit limits, outstanding balances, inquiries, collections and so forth. It also collects information from public sources which can include tax liens, judgements, and other public documents.

The credit score company assigns a weight to each piece of data to determine your score. The score evaluates risk of whether you can take on more debt and if you are likely to pay off the debt. The higher your score the lower the risk to the lender, and the better terms you receive.

While there are various credit scoring companies, FICO is used by 90% of lenders.

Why Do You Have More Than One Credit Score?

It is common for consumers to see one score from the credit card company and then a different score when applying for credit. There are several reasons for the different scores.

Credit bureaus have different scores because they are dependent on companies to submit data and not all companies report to all three bureaus. This creates a different score for each bureau, depending on what information is in your credit file.

Not all scores are FICO scores. While FICO is used by 90% of lenders, there are other companies like Vantage that use different algorithms (formulas) which create different scores.

Lenders change the scoring to meet their needs. Lenders can purchase a credit score and then tweak it to meet their risk assessment needs. This results in a score that may be different from the score they initially got from FICO. For example the lender might add medical collections that FICO has disregarded in their scoring model.

FICO makes changes to its scoring. Over the 25 years that FICO has been calculating consumer scores they have changed the scoring model eight different times. The company is constantly testing its formulas to accurately reflect consumer risk. For example the latest scoring model disregards medical bills that have been paid in full because it was determined this did not increase the risk of non-payment. Typically, after a debt has been paid off it remains on the credit file for an additional 7 years, however, recent changes in FICO 9.0 now disregard paid or settled accounts in collection for the purpose of calculating score, even though the account may be still be visible on the credit report.

Industry Scoring. In addition to traditional scoring models FICO also offers industry specific calculations. Credit cards, auto loans and mortgage lending each have their own industry specific algorithms.

Due to variations in credit scoring you should use one source and track your score over time. Monitor your score when you take out new credit, pay down debt or apply for a loan. Each of these actions will be reflected by changes in your credit score.

Credit scores are used by lenders, insurance companies, utilities, cell phone and satellite companies and even employers. While credit scoring may not always seem fair, it is critical for consumers to understand as it becomes widely used for decision making processes.