Think pulling your credit online yourself is just as good as when a lender pulls it? Think again.
The three big credit bureaus all use different methods to compute it.
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.
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.
There’s nothing amiss here. Here’s why. Most of the credit scores you buy or get free online are not the exact ones used by lenders. The gold standard is what’s called a FICO score, named after Fair Isaac Corp. of San Rafael, Calif., which devised a mathematical model to predict the credit risk of consumers based on information in their credit report.
FICO is the model most widely used by lenders. 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 there no wonder there is consumer confusion? Several years ago, largely because of pressure from consumer groups and public officials, the bureaus began selling credit scores to consumers. It was a long overdue move.
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. TransUnion and Experian, decided instead to sell to consumers a score that was similar to the FICO score, but not the real McCoy.
“The confusion and irritation of (consumers) is understandable,” said Craig Watts, public affairs manager for Fair Isaac. “It could be avoided if Experian, TransUnion and their various consumer Web sites 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 (if used at all) 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. 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 says it 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.
So in addition to scratching your head, you still may be wondering which score to buy?
Well, keep this Cooley quote in mind: “In the theater of confusion, knowing the location of the exits is what counts.” At least you now know why you may have gotten a different score than one shown to you by a lender.
“The key message is that there isn’t one credit score, there are a lot of different credit scores,” said Heather Greer, a spokeswoman for Experian.
I think the key message here is that until there is one uniform credit scoring system, consumers will continue to be confused and probably be forced to buy more than one score from one source to get a rounded picture of their credit standing.
- Michelle Singletary, a Washington Post columnist, writes about common-sense lessons for money and life.