Why One's Credit Scores Vary

Someone who obtained copies of his credit scores from one or all three major credit reporting companies may be surprised to find different figures

. He might ask how it is possible for evaluators to assign different ratings to just one person.

This query can be answered easily. An individual is rated differently depending on the type of loan he is applying for or the kind of financial transaction he wants engages in.

His score as a borrower of an auto loan may differ from his grade as a borrower of money used for tuition payment. Still, his grade as a potential buyer of an insurance product may also be different.

One main reason behind the varying evaluations is because the methods adopted by evaluating companies in calculating customer grades are flexible. These methods are meant to fit specific financial activities a person wants to do.

Credit reporting firms operate to serve clients, such as banks, insurance firms, and other companies wanting to know certain information to decide whether or not to transact business with an individual. Banks, for instance, pay for the information provided by the reporting companies to decide whether or not to grant the loan being applied for by a borrower.

An individual may have been prompt in paying insurance premiums in the past and, therefore, may be given high grades that will allow him to purchase another surety product. However, he may have been delinquent in paying an auto loan, and so may be given low grades that will prevent him from getting another borrowing of such type.

A person can also get varying scores from the three evaluators. This is because these firms have different methods of computing scores.

The three major evaluating firms are Experian, TransUnion and Equifax. Their job is to evaluate people in terms of their likelihood to fulfill or be delinquent on financial obligations.

If one has doubts about the accuracy of a credit score assigned to him, he can file a complaint to the concerned evaluator. It is everyone's right to make an inquiry about doubtful scores and request for a revision of grades if it is believed to be based on erroneous information.

A person's rating has a huge impact on his ability to engage in various kinds of financial transactions, such as borrowing from a bank, purchasing a product or a service, etc. This is the reason an individual should not take his ratings for granted. If he knows his grades were inaccurately computed, he should act immediately to have these corrected.

by: Leo Chu

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