FICO vs. Experian vs. Equifax: What’s the Difference?

FICO vs. Experian vs. Equifax: An Overview

There are three major credit agencies that are responsible for collecting data on people’s borrowing patterns and using this information to build detailed credit reports for lenders. The Fair Isaac Corporation (FICO) developed a proprietary method that assigns a number between 300 and 850 to each borrower’s rating of their creditworthiness. 1 When deciding whether or not to provide credit to a borrower, some lenders look simply at that person’s FICO score, while others also consider the information included in one or more of the borrower’s credit bureau reports.

Applicants seeking loans need to be familiar with both their FICO score and the contents of their credit bureau reports, such as those provided by Experian, Equifax, and TransUnion. This is because the FICO score is used in the decision-making process. Borrowers who believe they would do better according to a certain scoring or reporting system should hunt for lenders that use that particular model. Due to the significance of having a high credit score as well as good credit reports in the process of acquiring a loan, it may be beneficial to make an investment in one of the leading credit monitoring services in order to ensure that this information is protected.

Key Takeaways

• The advantages provided by Equifax are equivalent to those provided by Experian. The reports that are produced by the bureau are comprehensive and provide lenders with more information than just a number on the borrowing habits of a client. It suffers from the same limitations as well. Borrowers cannot confidently predict their chances of getting a loan based only on the information included in their Equifax report. On the other hand, if their Equifax report is much better than either their Experian report or their FICO score, they can try to find lenders who favor Equifax.
• The advantages provided by Equifax are equivalent to those provided by Experian. The reports that are produced by the bureau are comprehensive and provide lenders with more information than just a number on the borrowing habits of a client. It suffers from the same limitations as well. Borrowers cannot confidently predict their chances of getting a loan based only on the information included in their Equifax report. On the other hand, if their Equifax report is much better than either their Experian report or their FICO score, they can try to find lenders who favor Equifax.
• The advantages provided by Equifax are equivalent to those provided by Experian. The reports that are produced by the bureau are comprehensive and provide lenders with more information than just a number on the borrowing habits of a client. It suffers from the same limitations as well. Borrowers cannot confidently predict their chances of getting a loan based only on the information included in their Equifax report. On the other hand, if their Equifax report is much better than either their Experian report or their FICO score, they can try to find lenders who favor Equifax.

FICO

The FICO score was developed in 1989 by Fair, Isaac and Company, which later changed its name to Fair Isaac Corporation in 2003. The FICO score is based on a mathematical formula that is closely guarded and takes into account a variety of information that can be found in the credit agency records of customers. 2 The firm does not make publicly available the particular scoring algorithm that it makes use of; nevertheless, on its website, it does illustrate how points are weighted. 3

The borrower’s payment history, or the percentage of times they have paid their bills on time, is the single most important factor in determining their credit score; it accounts for 35% of the total. Another thirty percent is comprised of amounts owed, which is the proportion of a borrower’s outstanding debt to the credit limits that are available to them. The duration of a borrower’s credit history is one of the factors that goes into determining their score; more established accounts result in a higher FICO score. Customers are awarded a credit mix bonus of 10% by FICO if they can demonstrate that they are able to responsibly manage many types of debt, such as mortgages, auto loans, and revolving debt. Ten percent of the total is made up of newly acquired credit, and the FICO score penalizes borrowers who have recently opened several credit accounts. 3

For your FICO score to be as high as it can possibly be, you need to have a number of different credit accounts and have an excellent payment history. Borrowers should also practice discipline by keeping their credit card balances far below their credit card limits in order to avoid being rejected for more credit. Overusing credit cards, making payments late, and applying for credit without much thought all have a negative impact on FICO ratings.

When it comes to determining creditworthiness, more financial institutions (banks and lenders) employ FICO than any other scoring or reporting methodology. A low FICO score might be a deal breaker for many lenders, despite the fact that applicants may provide explanations for negative items that appear on their credit record. There are stringent FICO minimums that must be met in order to be accepted by many lenders, particularly those in the mortgage industry. In the event that the score is lower than this threshold, a refusal will be given. As a consequence of this, there is a compelling argument to be made that when seeking to build or repair credit, debtors should give FICO the highest priority possible above any and all other credit agencies.

The fact that FICO does not provide any room for judgment is the primary drawback of using it. If a borrower applies for a loan with a minimum FICO score of 660, but their score comes back lower than that, they are not approved for the loan, regardless of the explanation for why their score is lower than the minimum. It’s possible that it’s something that doesn’t signal a lack of creditworthiness for the particular loan that’s being sought, but the FICO scoring system doesn’t allow for subjectivity in any way, shape, or form.

Borrowers with low FICO scores but solid credit histories may want to search for lenders who make loan choices using a more holistic perspective.

VantageScore, which was established in 2006 as a result of a collaborative effort by the three main credit bureaus (Experian, Equifax, and TransUnion), is FICO’s key competitor when it comes to numerical scoring models. 4

Experian

One of the three major credit agencies, Experian is responsible for collecting data on customers’ financial transactions and borrowing patterns. Experian, Equifax, and TransUnion are the three credit reporting agencies that get information on clients’ outstanding debts and payment histories from creditors including mortgage lenders, auto finance companies, and credit card companies (TRU).The bureaus arrange this information into reports that reveal which accounts are in good standing, which are in bad standing, and which are in collections or public records, such as bankruptcies and liens. These reports may be seen on the bureaus’ websites. 5

The information that Experian provides is more in-depth than what is provided by FICO, which is one of the advantages that Experian has over FICO. There may be borrowers out there with FICO scores of 700, but their credit histories could not be more different. Lenders have the option of reviewing each borrower’s genuine credit history, which includes every payment that individual has been responsible for paying for at least ten years, and evaluating Experian credit reports to determine how each borrower managed their respective debts. It is possible that the algorithm used by FICO will give a borrower with impeccable credit the same FICO score as a borrower with a high credit risk.

The most significant shortcoming of Experian is the fact that, in contrast to FICO, it is seldom used as the only instrument for determining creditworthiness. Even financial institutions that thoroughly review a borrower’s credit report rather than relying just on the borrower’s numerical score sometimes take into account information from all three credit reporting agencies, not just Experian.

As a consequence of this, prospective borrowers need to routinely check each of their three credit reports, with the goal of discovering any inaccurate or unfavorable information.

On their website, Experian offers free FICO credit ratings, however Equifax and TransUnion do not make it possible to receive a free FICO credit score directly from them. On the other side, Equifax and TransUnion give customers with a free VantageScore, which is equivalent to FICO but is calculated in a slightly different method. 67

Equifax

Both Equifax and Experian are well-known names in the world of credit reporting. It is capable of producing credit reports that have a layout that is comparable to that of Experian’s reports. The reports provided by Equifax are comprehensive and easy to comprehend. If a borrower applies for a loan five years after making a late payment on a credit card bill, a lender who reviews the applicant’s Equifax record may be able to discover the exact month in which the borrower made the late payment on the credit card bill. Additionally, the report details any debts owed to collection agencies as well as any liens placed on the borrower’s property. 8

Credit ratings may be obtained from Equifax in numeric form, ranging from 280 to 850.9. These ratings are computed by the bureau using criteria that are similar to those used by FICO, however the precise methodology that is used is not the same. A high credit score with Equifax, on the other hand, almost always implies a good credit score with FICO.

The advantages provided by Equifax are equivalent to those provided by Experian. The reports that are produced by the bureau are comprehensive and provide lenders with more information than just a number on the borrowing habits of a client. It suffers from the same limitations as well. Borrowers cannot confidently predict their chances of getting a loan based only on the information included in their Equifax report. On the other hand, if their Equifax report is much better than either their Experian report or their FICO score, they can try to find lenders who favor Equifax.

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