Do creditors also calcualate credit scores?

Question

Do banks and other creditors also generate their own credit scores? Or they use the one provided by the 3 credit beaurus? I was told by a bank that they pull credit report from 3 beaurus and apply their own formula to arrive at the credit score which they show as that from credit beaurus. Then my question is why are 3 credit beaurus required to calculate these scores. Appreciate, if I get a real expert and authentic answer.

Thank you Rich...Maybe I need to put the query differently. I have subscribed to Credit monitoring and reporting of credit reports frm the 3 CBeaurus via that bank. So, they pulled the CReports and CScoress for these 3 CBeaurus . Now, I have pulled CR and CS from one of the CBeaurus directly. What I found that CScore as reported by that bank and by that CBeauru are different. So, I contacted the bank that if you pull report from 3 CBeaurus then their CScores should also match. So, they give this answer that we pull data from the 3 CBeaurus (ie Credit report) and use pur algorithm to create score. So, they show CScore for that CBeauru which is different from waht I got directly from that CBeaurus. Surprisingly, the CScore from that CBeauru has not changed in a day and also no change in data is reported in my Creport. Bank also pulled CReport the same day but their CScore is different. I am trying to understand why? I can understand that while lending evryone will apply their formulas.

Answer 1

Banks and lenders do not calculate their own credit scores. The scores are constructed by the credit bureaus themselves. However, each credit bureau may have more than one score on your report. The scores the lenders look at are the Equifax BEACON score, the Experian FICO score and the Trans Union EMPIRICA score. Then, they usually take the MIDDLE of the three scores to determine your qualifications for a loan product. In addition to this, your score can possibly change from day to day.

How the reporting works, is that each lender that has or has had an account with you can send the information in to the bureaus. Each lender may have a different timeframe for updating your report. So, for instance, your mortgage company may report on the 1st of each month, your car loan company may report on the 20th of each month, and your Sears account may report on the 17th of each month. As that new information comes in, your score is recalculated with that new piece of credit history. So, yes, your score can change daily.

Lastly, the reason all three reports are accessed is to make the lending decision as fair and accurate and safe as possible. The lender eliminates the high and low score and uses the middle for a "best" prediction of your ability and intention to repay the debt. It prevents someone with a 509 fico, 515 empirica and 730 beacon from qualifying for a premium product, when its possible there is a bunch of bad debt not necessarily reported to Equifax. On the same hand, it prevents someone who may have had an error in one credit bureau from getting something better than that one credit score suggests they should get.

I hope this makes sense to you. Keep in mind, credit scoring is certainly more art then science, but right now its the best thing lenders have to gauge the probability of getting their money back.

Answer 2

Some creditors use only one of the "Big Three" while others choose to use a "Combined Scoring System." Depending on the risk, I've found that Banks as well as other Financial Institutions will even use additional "Calculated Risk Software" to aid in the decision making process. The software give a prediction based on the data it processes.Thus, allowing lenders to make a more informative decision. As far as 3 CB required to calculate.... I'm not sure I would say they are required, It's more like they are getting paid to provide a valuable service. Let's face it lenders are in business to make money. They do so by selling money with interest and late fees. The 3 CB "Scoring System" help them know if they will make money or lose it. Glad I could help!