Do different credit scoring models really produce wildly different scores?

Date: June 25, 2020

One of the most persistent myths regarding credit scores is that each of us has one, unique, three-digit score that lenders use to determine our credit risk. That myth dovetails with yet another myth, which is that if your credit score is calculated by five different credit scoring models, then the five scores are going to be different in a meaningful way. That myth in turn leads to yet another, which is that if your score isn’t calculated using a certain brand of credit score, then it must not be “real.”

Now that we’ve identified this intertwined “mess of myths,” let’s try to unravel the truth about each.

First, we do not have just one “true” credit score—in fact, most of us have several dozen, and that number is on the rise. Credit scores are calculated by credit scoring models—software installed at each of the credit reporting companies (CRCs), which the CRCs use to generate credit scores based on the credit reports they have compiled on consumers in their respective databases. Scoring models are developed by competing companies, including VantageScore Solutions, FICO, and even the CRCs themselves.

Every few years, credit scoring models are rebuilt or “redeveloped” and newer versions of the software are installed at each of the three CRCs. And because older versions of the scoring software are still commercially available and being used by lenders, the CRCs do not normally decommission them.

Consequently, there are actually more than 70 such credit scores commercially available today for lenders to use. As a result, each of us potentially has more than 70 credit scores, not just one.

Second, it is unlikely that your credit scores will be wildly different simply because they are calculated by different scoring models or brands. Some have suggested that scores calculated by different scoring models can be differ significantly, varying by more than 100 points. That’s quite an overstatement. Although it’s true that different scoring models can and will likely produce different three-digit scores, those scores are not going to be radically different to the tune of a variance of more than 100 points.

With the exception of a number of lenders using older versions of the VantageScore® model, all general-use credit scoring models are now based on a normalized scale or “range” of 300 to 850. Older VantageScore®models use the range of 501 to 990. All credit scores calculated from those models are built to do the same thing, which is to predict how well you will repay your obligations. Those scoring models see the exact same credit files from the three CRCs and consider the same information when determining your score: payment history, debt usage, credit inquiries, account diversity, and the age of your credit accounts.

People whose credit reports reflect good debt-management habits, including timely payment of their bills and prudent use of their available borrowing limits, are going to all have good scores, regardless of the score type or brand used. People whose reports reflect spottier habits, such as occasional late payments or the “maxing out” of card limits, will have more middling credit scores. And people who have poor credit habits—multiple, frequent late payments, defaulted loans, bankruptcies, etc.—will have low credit scores. These observations are true for all of the 70-plus credit scores in commercial circulation today.

Although scores generated by different models (including different models by the same developer) are likely to differ numerically, they are still going to tell the same story about the consumer’s likelihood of repayment despite any numerical variance. For example, if I have a VantageScore® credit score of 795 and a score of 825 from another scoring model, the scores are certainly different numbers, but they nonetheless convey the same overall message, which is that I have very strong credit, reflecting good credit habits and a resulting small risk of defaulting. If my habits worsen, each score will decline by a more or less comparable degree. Conversely, if I begin with lower scores from two different models and then improve my credit habits, both scores will increase more or less proportionately.

Finally, there is no such thing as a meaningless credit score. Many years ago, the term “fake” scores (or some variation of that) was used to describe credit scores that were being given away or sold to consumers by certain websites. And although that may have been true more than 10 years ago, it’s no longer true today.

The difference between a fake credit score and an authentic credit score has nothing to do with what type or brand of score it is. Instead, the difference between a fake and a real credit score is about whether or not it is used by companies, like banks and other lenders, to make lending decisions. Any credit score type or brand that is used by lenders as a basis for their decisions is an authentic credit score, subject to the usage guidelines of the Equal Credit Opportunity Act.

Every single score type and brand that is being given to consumers by credit card issuers, banks, credit unions, and consumer education websites is the same type and brand of scores that is sold by the CRCs when you apply for credit. There is no difference other than who’s buying the score.