Experian is the largest credit reporting agency in the world. It collects data from information furnishers and compiles it to product credit reports. The information in these reports is used to generate credit scores which are used by lenders and creditors to make lending decisions.
One of the most commonly asked questions regarding Experian is related to its accuracy. Read on to learn more about how Experian compiles credit reports, the FICO scoring model, why there are differences among models and how to stay on top of your credit health.
The Accuracy of Experian Credit Reports
Not all creditors, lenders and information furnishers report to Experian. So, the information you find in an Experian credit report may be different from what appears in a report from TransUnion or Equifax.
The FICO Scoring Model
The FICO scoring model is the most prevalent in the credit industry. It’s used by 90 percent of top creditors and lenders to make lending decisions. Here are the five factors used by FICO to calculate your credit score:
- Payment history (35 percent of your credit score): Do you pay your lenders and creditors on time? Once an account is 30 days past due, the delinquency may be reported to the credit bureaus. A single late payment can tank your credit score significantly and will remain on your credit report for up to seven years.
- Amounts owed (30 percent of your credit score): What percentage of your credit limit on revolving accounts is currently in use? For example, if you have a credit card with a $1,000 limit and the current balance is $500, your credit utilization rate is 50 percent. To have the best shot at a healthy credit score, aim to keep this figure at or below 30 percent.
- Length of credit history (15 percent of your credit score): How long have you used credit? The longer, the better for your credit health, assuming you’d managed your accounts responsibly. Also, keep in mind that closing old accounts could hurt your credit score if doing so drops your average age of accounts.
- Credit mix (10 percent of your credit score): Lenders like to see a mix of revolving (i.e., credit cards) and installment accounts (i.e., personal loans, mortgages, auto loans, student loans) on your credit report. This demonstrates that you have experience managing different types of credit.
- New credit (10 percent of your credit score): Each time you apply for credit, a hard inquiry is generated and could dip your score by a few points. Too many hard inquiries in a short period can temporarily lower your credit score, and potential creditors could view you as risky.
Another model that’s gaining steam in the credit industry is the VantageScore. It also uses five components to compute a VantageScore:
- Total credit usage, balance and available credit: Extremely influential
- Credit experience and mix: Highly influential
- Payment history: Moderately influential
- Credit history age: Less influential
- New accounts: Less influential
Why There May Be Variations in Different Scoring Models
Whether you’re using FICO, VantageScore or some other credit-scoring model, here’s why your score may differ across the board.
The Difference in Scoring Requirements
FICO requires consumers to have six or more months of credit history and one open account that reports to one or more of the three credit bureaus – Experian, TransUnion and Equifax – within the same period. Otherwise, a FICO score can’t be generated.
On the other hand, VantageScore only requires one month of credit history from an account that’s been reported within the last two years to generate a score. This makes the VantageScore a more viable model for consumers who are credit newbies.
Varying Sources of Data
As mentioned above, some information furnishers fail to report to the three major credit bureaus. Furthermore, not all models consider the same types of credit data to compute your score.
Timing of Updates
Credit reports are also updated at different times of the month, depending on when the information furnisher, creditor or lender sends in current data. So, timing also plays a role in what account information and scores you’ll see when you pull your credit score from Experian and the other credit reporting agencies.
The Importance of Accurate Credit Reports
Your credit rating impacts many areas of your life. For example, it could be the difference between getting approved for a credit card or loan with competitive terms or spending thousands of dollars more in interest.
Many landlords also refer to credit scores to determine if you qualify for housing and if an additional security deposit is required. The same applies to service providers, including cable, interest and phone companies. And in some states, insurance providers use risk-based insurance credit scoring to set premiums.
Employers in select industries also review credit reports and could deny you an enticing opportunity if they don’t like what they see.
For these reasons, it’s important that your credit report is accurate. The information it contains is the basis for your credit score. So, if there are errors present, they could be dragging down your credit rating and costing you money and other opportunities.
H2 – Monitor Your Credit Score with Experian
It’s vital to ensure the contents of your credit report are accurate, but keeping tabs on your credit score is equally important. Experian makes it easy to keep up with your credit health through its array of offerings for both consumers and small business owners. They include:
- Experian CreditWorks: The free membership includes Experian credit report monitoring, monthly Experian credit report and FICO Score updates, FICO Score tracking, FICO score alerts and Experian Boost to improve your credit score for free. Or you can upgrade to the paid plan for $24.99 per month (after the 7-day trial period) and get three credit bureau monitoring, daily Experian credit report and FICO Score updates, industry-specific (i.e., auto, home and Bankcard) FICO scores, FICO Score alerts, access to the FICO Score Simulator, Experian Boost, Experian CreditLock and identity theft monitoring and protection with up to $1 million in identity theft insurance coverage.
- Experian IdentityWorks: Get added peace of mind with identity theft protection from Experian. It includes identity theft monitoring and alerts, Experian CreditLock, dark web surveillance, up to $1 million in identity theft insurance and monthly privacy scans to identify and delete your personal information from people finder sites. Enroll for free and pay just $24.99 per month following the 30-day trial period.
- Experian CreditMatch: Save time and money by using Experian CreditMatch to compare custom loan and credit card offers from lenders in the Experian network.
- Experian Go: Use this free tool if you’re a credit newbie and want to establish credit.
- Experian Small Business Solutions: Stay on top of your company’s credit health with business credit reports from Experian. The prices range from $39 to $179, depending on the report you select.
Explore all Experian has to offer by visiting its website. You can also sign up for a free account to view your Experian credit score and report or get your credit score for free. It’s simple to get started, and you won’t have to put your credit card or bank account information on file.
