« Previous Post | Blog Home | Next Post »
A common misconception: different credit scores exist
Posted on Mar 14, 2008 by Tom Fragala
The Red Tape Chronicles, a popular blog on MSNBC, has a post about credit scores. Looks like he doing a series on them. It's a topic that always raises people's ire and is a constant source of confusion and irritation.
There is one very common misconception and issue that is essential for people to understand. That is, there are different credit scores out there. People seem to think there is some government agency or golden rule that decides what your credit score is. In fact, there is really just a "de facto" standard: usually when you are talking about your credit score, you really mean your FICO Credit Score. That is what most banks, lenders and mortgage companies uses to determine your credit worthiness and ability to repay a loan. FICO is a creation of a for-profit, publicly traded company called Fair Isaac. And the formula for computing your FICO score is private--they protect it because it is something they developed and make money from.
You should be aware that there are MANY other providers of credit scores out there and they are NOT ALL EQUAL. That is worth repeating: there is no single credit score and all credit scores are not created equal. To be safest, make sure you are seeing or purchasing a FICO Credit Score. Yes, that benefits a for-profit company, but for now they are the "true" credit score in most cases.
The other most common providers of credit scores are the three consumer credit reporting companies themselves (i.e. the credit bureaus Experian, TransUnion and Equifax) and a company called CreditXpert. See, a credit score is always computed using your credit report, which these three bureaus maintain or "own." Fair Isaac, through their own business acumen, built the de facto standard FICO score and the bureaus don't like paying Fair Issac for this score. So the credit reporting companies are fighting back by selling their own credit scores to consumers, using their own formulas. These formulas are similar but not exact to what Fair Isaac uses. So a non-FICO credit score may be a very different value than your FICO score. In other words, it might not be the same number a bank or lender is looking at.
And you may be wondering, how do I get my free credit score? Well, if you apply for a mortgage or other loan product, and a score is used, the lender is required to provide it to you if you ask. Often, you will find a "free" credit score bundled with other services like credit reports or identity theft protection. You should check to see if what you are getting is a FICO score or not. I'm not saying that non-FICO scores are necessarily bad or useless in all cases. But most people want the see the same number lenders look at, which means a FICO score.
Note: the chart above shows you the five categories Fair Issac uses to determine your credit score and how heavily it weights each category.
Comments
ed dickson on Mar 16, 2008
Great post Tom! There are a lot of people, who do not understand how this sy stem works.
Bob Mulholland on Jun 30, 2008
The best source for FICO scores is www.myfico.com/12. I got this from Stephen Snyder of "After Bankruptcy". He's been the best source of credit score info for me since 2001.
Post a Comment