FICO vs. Experian vs. Equifax

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

If you’ve ever applied for a loan, whether it’s for a car, a home, or even a small business, I’m sure you know the importance of a credit score. But what about credit reports?

Credit reports tell lenders about your credit history and how reliable you are as a borrower. But more than that, credit reports help you understand your credit, improve your credit score, and prevent fraud and identity theft. So how do you get your credit report? This is where credit bureaus like Equifax, Experian, and FICO come from.

What is a credit bureau?

A credit bureau is a business organization that collects and sells data about individuals’ credit histories. They usually collect data such as your credit card and loan balance, the number of credit accounts you have, the date of your payment, any bankruptcy, etc. Today, there are dozens of credit bureaus, but the “big three” are Equifax, Experian, and Trans Union.

Credit bureaus are also called “credit reporting agencies.”

Credit bureaus are created to help lenders quickly assess the credibility of a potential borrower. In the past, you could go to a good general store and the owner knew you, your character, and whether it was a good idea to “charge” (or credit) your item. This approach may work in the past when communities were small and isolated, but it should be a better way to move forward. That’s how credit bureaus came into being.

Credit bureaus collect data from potential lenders and sell it to banks to help them make informed lending decisions. The oldest of the “Big Three”, Equifax began to meet this need in 1899.

Today, the Credit Bureau has streamlined and computerized the entire process by compiling the data collected in the credit report and credit score. While each credit bureau calculates credit scores differently, and each lender has different credit score requirements, credit reports and credit scores allow for a more universal measuring stick for judging potential lenders. ۔ Recently, credit bureaus have also worked to provide dozens of additional products to help individuals and businesses alike, including identity protection, business marketing, and more.

FICO

Fair, Isaac, and Company (which became Fair Isaac Corporation in 2003) developed the FICO score in 1989 as a subtle security mathematical formula that takes into account the various information contained in consumer credit bureau reports. The company does not disclose the exact model of scoring it uses, but its website does indicate how the score is weighed.

The date of repayment, or how often the borrower pays the bill on time, is the most important factor, accounting for 35% of the borrower’s score. The amount owed, i.e. the ratio of the borrower’s outstanding debt to their credit limit, becomes a further 30%. The length of the credit history is 15% of the borrower’s score. Experienced accounts boost the FICO score. The credit mix accounts for 10%, with FICO awarding lenders indicating that they can manage a variety of loans, such as mortgages, auto loans, and revolving loans. New credit also becomes 10%; FICO looks at borrowers who have recently opened multiple credit accounts.

Achieving a high FICO score requires a mix of credit accounts and maintaining an excellent payment history. Borrowers should also exercise restraint by keeping their credit card balances below their limits. Maximizing credit cards, making late payments, and relentlessly applying for new credit are all things that lower FICO scores.

More banks and lenders use FICO to make credit decisions than any other scoring or reporting model. While borrowers may point out the negative in their credit report, the fact is that having a low FICO score is a deal breaker with many lenders. Many lenders, especially in the mortgage industry, maintain a strict and fast FICO minimum for approval. Below this threshold comes a point of denial. Therefore, there is a strong argument that borrowers should give preference to FICO over all other bureaus when trying to build or improve credit.

The biggest drawback of FICO is that it has no room for discretion. If borrowers apply for a loan that requires a minimum of 660 FICO for approval and their score reaches 659, they will be denied a loan, regardless of their score. Is done. This may be something that does not in any way imply a lack of loan eligibility for the required loan, but unfortunately, the FICO scoring model does not lend itself to subjectivity.

Lenders with low FICO scores who have standard information in their credit reports should pursue lenders who take a more comprehensive approach to making credit decisions.

Experian

Experian is one of the three major credit bureaus that produces reports on consumer borrowing habits. Lenders, such as mortgage companies, auto finance companies, and credit card companies, report the borrower’s outstanding debt and repayment history to Experian, as well as its affiliates Equifax and TransUnion (TRU). Bureaus compile information into reports that break down which accounts are in good condition, which are in bad condition, and which are in collection and public records, such as bankruptcy and lens.

The advantage of being experienced at FICO is that the information it provides is more comprehensive than a simple number. A couple of borrowers may have 700 FICO scores but the credit history can be very different. By reviewing Experian Credit Reports, lenders can look at the actual credit history of each borrower, each loan that has been owed to that person for a decade or more, and can analyze whether the person owes the loan. How to manage It is possible that FICO’s algorithm can give an ideal borrower the same FICO score as someone who has a higher credit risk.

The main disadvantage of Experian is that, unlike FICO, it is rarely used as a standalone tool for making credit decisions. Even lenders who review credit reports in detail rather than eliminate the borrower’s numerical score usually look at the results of all three bureaus, not just the veterans.

As a result, borrowers should periodically review all three credit reports to monitor for inaccurate or offensive information.

Equifax

Like Experian, Equifax is a large credit reporting bureau. It produces credit reports similar to Experian and follows the same format. Equifax reports are detailed and easy to read. If a lender who late on a credit card bill five years ago applies for a loan, the lender can review his Equifax report to identify the correct month of late p      ayment. The report also identifies lenses against collection agencies’ proprietary loans and borrower’s assets.

Equifax offers numeric credit scores ranging from 280 to 850. The Bureau uses standards like FICO to calculate these scores, but as with Experian, the exact formula is not the same. However, a high Equifax credit score usually indicates a high FICO score.

The benefits of Equifax are similar to the benefits of Experian. Bureau reports are detailed and provide lenders with more than one in-depth insight into consumer borrowing habits. Its disadvantages are the same. Borrowers cannot secure their loan approvals just by looking at their Equifax report. However, if their Equifax report is stronger than their Experian report or FICO score, they have the ability to find lenders who prefer Equifax.