Not all credit scores are created equal

iVillage Member
Registered: 02-19-2004
Not all credit scores are created equal
5
Thu, 03-31-2005 - 9:53am

Did you know this? "Most of the credit scores you buy or get free online are not the ones used by lenders." I had no idea. Equifax uses a FICO score, but Experian and Trans Union do not. I did know that some lenders use their own proprietary scoring models (I used to have an equipment leasing company for a client that did this) but I thought most used FICO, and that when I bought my score I was getting the FICO score. Read the entire article below:

http://www.boston.com/business/personalfinance/articles/2005/03/27/not_all_credit_scores_are_created_equal/

Not all credit scores are created equal
By Michelle Singletary | March 27, 2005

Humorist Mason Cooley once said, ''Every path to a new understanding begins in confusion."

That quote applies to e-mails I received from confused readers, who recently ordered their credit scores to gain a better understanding of where they stood, creditwise. In one case a husband and wife paid for and got all six of their credit scores (one for each of them from the three major credit bureaus). The scores ranged from a low of 602 to a high of 712.

But when a mortgage bank pulled the credit scores not long after the couple did, their scores were significantly lower, ranging from 598 to 649. ''Why are our scores from the mortgage company different than the ones we pulled online?" the husband asked. ''Shouldn't they be the same scores I pull from the three credit bureaus?"

Another reader from Los Angeles wrote that his wife purchased her credit score online from TransUnion. The score she received was 864. Three days later, after applying for a home equity loan, the score the lender got from TransUnion was 775. "That's a drop of over 67 points. It doesn't seem plausible," the reader wrote.

There's nothing amiss here. Most of the credit scores you buy or get free online are not the ones used by lenders. The gold standard is a FICO score, named after the San Rafael, Calif.-based Fair Isaac Corp., which devised a mathematical model to predict the credit risk of consumers based on information in their credit report.

It's only been in the last few years that consumers could even purchase their credit scores, three-digit numbers that are generated using information from their personal credit files. The higher your score, the better credit risk lenders think you are. A high score often translates into better rates on the money you borrow.

All three major credit bureaus -- Experian, TransUnion, and Equifax -- use different scoring models, including FICO, which ranges from 300 to 850. Lenders also use different credit-scoring models, including FICO. Is it any wonder consumers are confused?

Several years ago, largely because of pressure from consumer groups and public officials, the bureaus began selling credit scores to consumers. Now, knowing their scores, people can take steps to improve their credit ranking. Equifax and Fair Isaac teamed up to provide consumers with their FICO credit scores. The other two credit bureaus, TransUnion and Experian, decided instead to sell to consumers a score that was similar -- but not the real McCoy -- to the FICO score.

''The confusion and irritation of is understandable," said Craig Watts, public affairs manager for Fair Isaac. ''It could be avoided if Experian, TransUnion, and their various consumer websites would only be upfront to consumers about the nature of the consumer scores they sell -- they aren't FICO scores, they aren't widely used by lenders. They are at best someone's estimate of what the consumer's true FICO score is."

To be fair, Experian and TransUnion do have disclaimers that inform consumers that the scores they provide aren't FICO scores. But the information is buried in fine print that many people probably don't notice.

When you order your credit score from the three bureaus, here's what you're getting:

Equifax's credit score is called ''Score Power." Even though this uses the FICO scoring mode, you may get a different score than one pulled by a lender because the information in your credit file is constantly changing, which means your score can change as well. The score you get this week may not be the same score a lender would get from the credit reporting company the next. In fact, the last two statements are true for any score you may buy.

Experian calls its credit score product ''PLUS Score" and is based on factors similar to but not the same as FICO. The PLUS Score ranges from 330 to 830.

TransUnion's credit score product is also not a FICO score, but based on the bureau's own proprietary scoring model, which is why the Los Angeles reader's score was outside the FICO range.

I think the key message here is that until there is one uniform credit scoring system, consumers will be confused and probably be forced to buy more than one score from one source to get a rounded picture of their credit standing.

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iVillage Member
Registered: 09-22-2003
Thu, 03-31-2005 - 2:34pm
Thanks for posting that article Firstamendment. I was just thinking about that since I know my scores range from 683-743. That's a big jump. The lower is Equifax who are the ones my Credit Union use. That's why I can't get them to lower my interest rate on my credit card. Equifax has me so low, but the others are 721 and 743. It is very frustrating. It's one of the reasons I am looking at a different lender for my refinancing. They look at all 3 credit scores, not just one like my credit union. The one that marks people the lowest. I just ask what my credit score is when they pull my credit.That way I don't have to pay to have them pulled. I also tend to work with friends and people I know, so they will tell me that information. If I didn't knwo the person they woudl probably say I can't have access to that info. It's good to have friends who can pull scores.
iVillage Member
Registered: 09-21-2004
Thu, 03-31-2005 - 9:20pm
That article is crazy, I'd always heard people got different scores if they ordered more than one but never could figure out why.
If you apply for, let's say, a loan through your bank, can they tell you what your score is? I've never even thought of asking but if I don't have to pay for it and I can see what they are looking at, it would help.
iVillage Member
Registered: 02-19-2004
Fri, 04-01-2005 - 9:12am
Well, you'll always get three different scores from the three different bureau's, but that is because each bureau's report has different information (for example, Experian shows a delinquent account I had in 2002, the other two don't show it at all, so my Experian score is lower). The surprise is that they all sell your FICO score to lenders and two of them sell you just an estimate of the score (which could vary a lot from the score they give to lenders). Some lenders will tell you your score, some won't.

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iVillage Member
Registered: 09-22-2003
Fri, 04-01-2005 - 9:45am
If you have ever been refused credit also, the company should give you a form that let's you get a copy of that credit report. I don't believe there is a cost. I used to send a form to people so they could get copies when we wouldn't open an account at the credit union for them. We used Equifax. It doesn't hurt to ask the lender for your information as to why you were refused and what was your score. As I have known the people they will tell me. It never hurts to ask. There's only ever 2 answers, yes or no.
iVillage Member
Registered: 09-21-2004
Wed, 04-06-2005 - 12:53pm
Right after I posted this I went to the library and got some books on debt and finances (wasn't planning on it I just walked down the aisle) and I read one of the books in one day. That was covered in there. It made sense when I read it.