Equifax used to calculate credit scores for consumers out of 700. But in April 2021 it switched to calculating scores out of 1000 and has changed the bands used to describe your credit rating.
Oddly Equifax hasn’t made an announcement about these changes.
The Equifax Credit Report & Score has been updated but hardly anyone uses that. Most people see their Equifax score using the ClearScore report, which still uses the old-style scores out of 700.
So what is happening and how will this affect you?
How will this affect you?
Your credit record hasn’t changed – a higher score isn’t better
You might think a higher number sounds good – but it doesn’t mean your credit history has improved. Equifax is just showing you a different number.
It like a teacher saying “I normally mark your project out of 10, but from now on I am going to mark out of 20 instead”. If you had 7/10 for your last piece and next get 14/20 your work isn’t any better.
Lenders don’t use these scores that Equifax calculates for you at all.
Some lenders use the Equifax data and some of them get Equifax to calculate a score for them, so the credit history Equifax holds is important for your chance of getting a loan or a credit card.
But the scores lenders use are not the ones you can see, so the fact your headline number has changed won’t affect whether your credit application is approved.
Equifax now puts scores into different bands
Equifax used to use Very poor – Poor – Fair – Good – Excellent to describe your credit rating.
The numbers would have to change for the new 0-1000 scale, but Equifax has also decided to change the band names to Poor – Fair – Good – Very good – Excellent.
This table shows the old Equifax guidelines compared to the new ones:
|Equifax rating||previous||from 2021|
It isn’t easy to see from that at a glance, but some of the changes in the bands are large and they haven’t all been caused by the change to 0-1000 scoring. It is clearer in a diagram:
- no-one has a Very Poor credit score anymore and most people who were rated Poor before are now Fair
- the new Good band is much larger than the old one, so more people will be in it;
- the previous Excellent band has been divided into two, so some people will see their rating “drop” to Very Good.
But these are just labels… once again they don’t have any impact on whether you are likely to be accepted or rejected for credit. Equifax could have called them “Pants” and “Awesome” and lenders would not change what they think of your credit record.
When will ClearScore be updated?
Several credit reports are based on Equifax data – there is a list of these in Which is the best way to check your credit record?
Much the most widely used is ClearScore which has 11 million subscribers. I asked ClearScore whether they would be changing to use the new score.
They have now updated their website to say:
And they have told me:
we have plans to move to a score out of 1000 later in the year. It has always been our mission to make the world of credit clearer, calmer and easier to understand, and this move will hopefully make things a lot clearer for the consumer.
So ClearScore users will see a jump in their credit score at some point in 2021.
Until then, things could be pretty confusing… a score of 500 will be described as “Excellent” on a ClearScore report which is out of 700. But elsewhere on the web they can see an Equifax score of 500 described as “Fair” because it is out of 1000.
Different CRAs have different scores
It has always been confusing that the three major Credit Reference Agencies (CRAs) each assess your credit score on a scale with a different maximum:
- Experian is 999.
- Equifax was 700, now it’s 1000.
- TransUnion is 710.
You might think that now Equifax’s maximum is almost the same as Experian, this means that your Experian and Equifax scores will be almost the same so you only have to check one of them… but that is wrong.
The most important factor in calculating your credit score is your credit history. But many creditors don’t report to all three CRAs.
Suppose you have one credit card with no problems which reports to all three CRAs and one loan where you missed some payments that only reports to Equifax and TransUnion. Here your Experian credit score will not be affected by the loan problem and so will be higher than your Equifax score. And your Equifax score will be higher than your Transunion score, even though they have the same data, because Equifax is marked out of a different number.
So people that want to be sure what their credit record looks like will still have to check reports covering all three CRAs – see The three best ways to check your credit ratings for my recommendations.
I asked TransUnion if they had any plans to change from their current 710 maximum. Kelli Fielding said:
“If, in the future we felt there was a potential benefit in changing the current scoring model we would look into that but it’s important that any changes take into account the broader discrepancies in how different credit reference agencies and lenders use the data provided. Without careful consideration and planning there could be a risk of confusing consumers by suggesting the scores are the same if the meanings are not.”
Why did Equifax do this?
I have asked Equifax this – so far they haven’t replied, so the following are my thoughts.
700 always seemed like a strange number, so perhaps Equifax just wanted a more sensible one? But making this sort of change is going to be confusing for customers during the transition, so there probably has to be a better reason than that.
My guess is that Equifax wanted to change, not because of the new number at all, but because changing the numbers gave them an excuse to change those band names and ranges. This looks like a pure marketing move to me.
Consumers often ask “Which is the best CRA/credit report?”
To which the correct answer is they are all much the same but they have different data, so you need to check them all. But most people only check one credit report covering one CRA… Reports using Equifax’s new rating labels may simply look more friendly as they are using more positive terms for most people.
And splitting the Excellent band in two may encourage more people in the new Very Good category to apply for more credit to get their score up to excellent again.
The FCA is going to be looking at the credit information industry this year. I think consumers want a system:
- which is simple to understand, with a single report on their whole credit history;
- where repaying debt helps your credit score; and
- where applying for credit you do not need is not the best way to increase your score.
Funnily enough, more clever marketing by CRAs is not on that list at all.