If you have ever felt confused by credit scores, don’t feel alone! Everywhere you go from the internet, to television ads, to radio commercials you will see some type of product that you can purchase to learn your “credit score”. All kinds of companies are now making a big push to have us as consumer’s purchase our credit scores so that we are aware of what is being reported about us. While I can appreciate the awareness that this brings to people about the importance of our credit score, the part that really irritates me is that all these companies are really doing is confusing people even more.
Just about every time I do a public speaking event I have someone bring up an example and it usually is always about the same. It goes like this, “I checked my score online, then I went to a mortgage broker and was shocked when I was told that my score was significantly lower than the score I just bought a day or two earlier online, why is that?” The answer that I give is always the same; the score you bought online is a credit score. It is considered a credit score because it does take the information from your credit report, evaluates it somehow and then gives you some type of credit that reflects your creditworthiness. That is where the similarities end and confusion begins! The main difference is just about every “credit score” you purchase online has two main differences from the FICO score. First, usually it has a different score range, for example in the classic FICO score the range is 300 to 850. Some of these other scores have ranges from 500 to 950! The second main difference is the criterion that is being analyzed. FICO has certain things they use in their model and each of those has different values. These other scores can’t use the same values as FICO does so for that reason not only do they have a different score range, they also evaluate different information and assign different values to that information.
Having said all that, at this point in time the FICO score is the overwhelmingly favorite score used by all industries to determine your creditworthiness. So unless that changes, in my opinion it is a waste of time to spend any money to see what a score looks like or follow any advice to improve that score if it’s not even a score that any lender is ever going to use anyhow to determine if you can qualify for a loan or not.
A lot of people understand the difference between a “credit score” and FICO score, but one other thing that can drive people nuts is when they do their homework and are educated about the differences so they purchase their FICO score on the internet. They are doing the right thing by at least purchasing the proper type of score, but then again are surprised when the scenario above is played out again. How can this happen, “I pulled my FICO score, my mortgage person also pulled my FICO score but there is a big difference between what I pulled and the score the mortgage broker pulled?” What we are dealing with here is FICO has created not only industry specific scoring models, but also there are different versions of that model being used! Currently there are over 49 legitimate FICO scores being used all with differences between each of them. In other words depending on what type of credit you are applying for and who you are applying with you could have 49 different FICO scores!
The best advice I can give you with this, understand the best you can what the FICO score is looking for and evaluating, then do the best you can to maximize all those areas of your score.