Loren Mccray Explains Why Two Different Lenders Can Check Your Credit Scores on the Same Day and See Different Scores
You can go to two…three…even four different lenders on the same day, only minutes apart, and each lender can see totally different scores for you.
The most likely reason is that each lender may be using different versions of the FICO credit scoring software.
From time to time Fair Isaac updates the software they use to determine credit scores at each of the three credit bureaus. However, when the three credit bureaus get updated software from Fair Isaac, they still make the old versions available. They don’t automatically switch everyone to the new version. So new clients get the new software, but old clients remain on the old software (unless the client specifically asks for an update).
For instance, let’s assume you go to a bank that’s been a client of TransUnion for five years. Chances are that they will still be using the software they were offered five years ago.
But, let’s say a new bank opens up and is just starting to use TransUnion. The new bank will most likely be on the latest release.
This is one possibility as to why you have different scores from two banks, even though both banks use the exact same credit bureau.
Unless a bank specifically asks for an update to the new version, they will stay on the old one.
Think about it like this…you probably own a computer with Microsoft® Windows®? If so, what version of Windows software do you use? Is it…
- Windows 95
- Windows 98
- Windows NT
- Windows NT 3.1
- Windows NT 3.5
- Windows NT 3.51
- Windows 2000
- Windows 2000 Professional
- Windows ME
- Windows XP Home Edition
- Windows XP Professional
- Windows XP Media Center
- Windows Vista Home Basic
- Windows Vista Home Premium
- Windows Vista Business
- Windows Vista Ultimate
There are many different versions of Windows, but they’re all still Windows. The only differences are that some are older than others and the newer ones seem to be better.
Just like Windows, there are many different versions of the software that produces the FICO credit score, even though they’re all called FICO scores.
Here are some examples..
- BEACON
- BEACON 96
- BEACON 5.0
- Enhanced BEACON
- Experian/Fair Isaac Score
- Experian/Fair Isaac score V2
- EMPIRICA
- FICO Risk Score Classic ’04
- EMPIRICA 98
What’s the most up-to-date version? Each credit bureau has its own version of the correct answer. Do you know which one is the most current? Does your bank know? Doubtful.
This is the reason that some of the banks you use don’t have access to your most current FICO credit scores.
This is a much larger issue than anyone will confess. Look at it this way, if your bank is using a score based on an older version of the software, it could cause you to be:
1. Declined for credit or a loan
2. Approved, but at a higher rate
3. Declined for auto, renter’s or homeowner’s insurance
The fact is, the newer software does a much better job of scoring individuals.
Some Banks Use the Older Software to Charge Higher Interest Rates
Since each version will calculate your credit scores differently—some banks will intentionally choose not to update their software in hopes of scoring you lower.
Now let’s be very clear…about 85% of the businesses that loan money are good, ethical companies and would never try this. However, it’s the 15% that you have to watch out for.
But, even if you’re using an honest lender, they may still be sticking you with high interest rates if they’re using older FICO software.
Your mortgage broker will have no idea if the place they got your credit scores from is using the most recent version of the software. It’s just not something they know. And, as you’ll find out in a moment, the more up-to-date the software is, the more likely your FICO scores are going to be higher.
There’s no rule that says, “All lenders who use Experian have to get the most updated version of the FICO score.” They can get any FICO credit score from Experian that they choose.
Updating Fair Isaac’s Credit Scoring Software
Fair Isaac creates the software that determines FICO credit scores. No different than any other type of software, it has to be updated regularly. Whenever it’s updated, or “re-developed,” the latest version gets installed at all of the credit bureaus. However, the previous versions don’t get deleted. Lenders may still utilize the older versions.
After a few updates it can get messy…some banks still use versions that were built in the 80’s. These are not just mom-and-pop shops…these are huge, main stream banks.
So, I bet you’re wondering, “Why doesn’t every bank just request to be put on the latest release?”
Why Do Banks Use Old FICO Score Software?
Easy, it’s expensive to switch.
This is the problem, using an updated version of the software isn’t as easy as simple as turning an old version off and turning the new version on. It’s quite complicated, time consuming, and very expensive.
Think about what it takes to change a small part deep inside your car’s engine. The part may only be $20, but it could cost you $2,000 in labor just to get it replaced.
That’s similar to how it works with the updated scoring software. What if the $20 part isn’t even broken…then is it really worth shelling out $2,000 to replace it? Most banks would say, “No!”
Since they aren’t broken, they don’t want to take the time, and spend the money to swap them out for a newer version, banks will continue to use older software version…even though it’s in their customers’ best interest for them to update it.
Why Doesn’t Fair Isaac Make Lenders Use the Newest Version
The question that some of you are going to ask is, “Why won’t Fair Isaac or the credit bureaus make the banks to update it?”
Fair Isaac has no influence on the scoring software version banks use. They can request that they update it, and can demonstrate the latest release is better than the older version—but that’s about all they can do.
It’s similar to Microsoft when they update their operating system. Sure, they’d love for everyone to switch over to the latest Windows operating system, but they can’t pass a law to force everyone to do it.
The credit bureaus could force banks to switch to the newest version. But that will never happen. They would basically be telling their largest customers what to do.
It just won’t happen.
Older Versions Calculate Scores Differently
This is the issue though; the older software versions calculate everything differently. Here are just two significant changes:
1. Your credit inquiries are going to be treated more favorably in newer versions than in older versions.
2. The penalty you pay for using finance companies is less in newer versions than in older versions.
Use Banks with the Most Current Software
It’s in your best interest if banks use the latest FICO software. There’s a big difference in what a mortgage company can do for you if you have a middle score of 570 versus having a middle score of 602.
One score means, “I’m sorry I cannot help you.” The other score means, “Congratulations! You qualify for a mortgage with no money down at a normal interest rate.”
