An overview of FICO vs. Experian vs. Equifax: These three major credit bureaus collect information about consumers’ lending habits, and Experian and Equifax use that information to create detailed credit reports for lenders. FICO Corporation, on the other hand, developed an algorithm that numerically scores borrowers from 300 to 850 according to their creditworthiness. What is the difference between FICO, Experian, and Equifax?
Some lenders base their credit decisions solely on a borrower’s FICO score. Others examine the information found in one or more credit bureau reports.
It is helpful for borrowers to know their FICO score before applying for a loan. As well as the information that appears on your credit reports from Experian PLC (EXPN) and Equifax Inc. (EFX).
What you need to know:
- Equifax, Experian, and FICO: All three companies collect and provide lenders with information about consumers’ credit habits.
- FICO only provides numerical credit scores, which are based on payment patterns and debt obligations.
- Experian and Equifax also provide credit scores and detailed consumer credit histories.
Is a credit score developed in 1989 by Fair Isaac Corporation. It uses a very complex mathematical formula and takes into account a ton of data from a consumer’s credit report. The company does not reveal the exact calculation model it uses, but it indicates how the scores are weighted on its website.
A borrower’s payment history, or how often they pay their bills on time, comprises 35% of the borrower’s credit score. Another 30% of a borrower’s credit limit is made up of outstanding debt, which is how much a borrower owes relative to the limit. The size of the credit history contributes 15% to the FICO score; more experienced accounts raise the score. Credit composition accounts for 10%. FICO rewards borrowers who demonstrate that they have the ability to handle different types of debt, such as mortgages, car loans, and revolving debt. New credit also represents 10% of the score; FICO views borrowers who have recently opened multiple credit accounts as suspect.
You’ll need a few credit accounts and a good payment history to achieve a high FICO score. Borrowers should keep their credit card balances well below their credit limits. Your FICO score can be lowered by maxing out credit card balances, paying late, and applying for new credit randomly.
Banks and lenders prefer FICO to any other scoring or reporting model when making credit decisions. A low FICO score is a denial factor for many lenders, even if borrowers can explain negative items on their credit reports.
The mortgage industry maintains tough and strict FICO minimums for credit approval. Those whose FICO scores fall below the minimum are turned down for loans. Therefore, there is a strong argument that borrowers should prioritize FICO over all other reporting agencies when trying to build or improve their credit.
FICO’s biggest drawback is that it leaves no room for discretion. Regardless of the reason for the score, borrowers who apply for a loan that requires a minimum of 660 FICO will be denied the loan if their score reaches 659. It is unfortunate that the FICO scoring model cannot be subjected to subjective evaluation. A borrower with a low FICO score should look for lenders who use a broader approach to making credit decisions.
VantageScore is FICO’s main competition in numerical scoring models. It was developed in 2006 as a joint venture between Experian, Equifax, and TransUnion.
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Experian is one of three major credit bureaus that produce reports detailing each consumer’s borrowing history. Among others, mortgage companies, auto finance companies, and credit card companies report borrowers’ outstanding debts and payment histories to Experian, as well as Equifax and TransUnion. Data is organized into reports that break down accounts into good standing accounts, accounts that are in bad standing, and accounts that are in collections and public records, such as bankruptcies and liens.
Additionally, Experian offers its own numerical scoring model, called Experian PLUS, which provides a score between 330 and 830. Even though they are not the same and the algorithms used to calculate them differ, Experian PLUS scores correlate significantly with FICO scores.
Experian’s advantage over FICO is that its information is more comprehensive than a simple number. Despite having 700 FICO scores, two borrowers may have very different credit histories. Experian credit reports allow lenders to review each borrower’s credit history, every loan the borrower has taken out for a decade or more, and how the borrower handled debt.
Exponential’s main weakness is that, unlike FICO, it is rarely used alone to make credit decisions. Even lenders who look at credit reports in detail, rather than just going by the borrower’s numerical score, typically check the results from all three bureaus, not just Experian. Consequently, borrowers should periodically review all three credit reports for any inaccurate or negative information.
Keep Reading: How to improve your credit score and what is it?
Experian and Equifax are both credit reporting agencies. It produces reports similar to those produced by Experian and follows a similar format. Equifax reports are detailed and easy to understand.
If a borrower who paid a credit card bill late five years ago is now applying for a loan, a lender reviewing their Equifax report will be able to determine the month of the late payment. As well as collection agency debts, the report includes liens against the borrower’s assets.
Equifax offers credit scores ranging between 280 and 850 points. As with Experian, the bureau uses similar criteria to calculate these scores, but the formula is not the same as FICO. However, a high Equifax credit score is typically indicative of a high FICO score.
Experian’s benefits are similar to Equifax’s. Reports from this agency provide lenders with detailed information about consumer habits that goes beyond a simple number. However, it has some disadvantages as well. A borrower can’t accurately judge their chances of loan approval by looking at their Equifax report. You may be able to find lenders who prioritize Equifax if your Equifax report is much stronger than your Experian report or your FICO score.