All About Credit Scores

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Here’s an impossible question to answer–What’s my credit score? The reason nobody can answer that question is because we all have more than one score. In fact, we have many, many credit scores.

Here’s another impossible question to answer–What’s my FICO credit score? Surely there is just one FICO score for each of us, right? Nope. In fact, we each potentially have more than a dozen “FICO” credit scores. So much for FICO versus FAKO. (Sigh.)

Recently in my weekly U.S. News column I talked about the The Myth of a “True” Credit Score. Today I want to take it one step further and list for you all of the potential credit scores you may have. We’ll cover the differences between the scores, what they are used for, and how you can get access to some of them (you can’t get access to all of them).

Before we get to specific scores, we need to cover some basic information about the credit scoring industry:

1. Credit Score = Data + Scoring Formula: Two things are needed to generate a credit score–a consumer’s credit history and a formula to apply to that data.
2. Three Credit Bureaus: There are three national credit reporting agencies (CRA): Experian, TransUnion, and Equifax. For a variety of reasons, the data each agency has on a consumer almost always varies. As a result, even if there were only one credit scoring formula, each of us would have three different credit scores, one for each CRA.
3. Multiple Formulas: While FICO is the best known credit scoring formula, it’s not the only one. Each of the three CRAs have their own formulas, and other third parties have developed their own methods of predicting consumer defaults.
4. Custom vs. Industry vs. Educational Formulas: If things weren’t complicated enough, there are also different formulas for certain industries (auto loans and mortgages, for example). Some lenders have developed their own custom formulas that are a well-guarded secret. And there are what are called educational scores that are sold to consumers to give them an idea of where they stand.

In fact, the industry has become so lucrative and confusing, that the Consumer Financial Protection Bureau recently published a report on credit scores. The focus of the report was whether there were significant differences between educational scores sold to consumers and the actual scores that lenders use when evaluating a credit application. The report doesn’t answer this question, but it does describe a study the CFPB is undertaking to do just that.

What was most fascinating were the sheer number of scores floating around out there.

FICO Credit Scores

FICO developed the first credit scores in the 1950s, and today the FICO score comes in many favors:

• Generic FICO: FICO has developed generic scoring models for each of the three national CRAs.
• Generational FICO: The generic FICO scoring model changes from time to time, and old versions of the model are still in use today.
• Industry FICO: FICO has developed special scoring models for the credit card, mortgage and auto loan industries.

The key here is that even if you purchase your FICO score, it likely won’t be the same number a bank or other lender would see, even if they too are using FICO scores!  If you want to see your FICO score, you can get access to it at Equifax.

CRA Scores

Each of the the three national CRAs has developed its own scoring models:

• Equifax: “Equifax Credit Score” with a range of 280-850.
• Experian: “Experian Plus Score” with a range of 330-830. Note that the Experian Plus Score is available through FreeCreditScore.
• TransUnion: “TransRisk New Account Score” with a range of 300-850.

And if that weren’t enough, each of the CRAs develop custom scores for clients.

VantageScore

Some time ago the three CRAs got together and decided to develop a joint score. Because they each must pay FICO a license fee to use its scoring model, they were hoping to push FICO off the gravy train. The results have been mixed, at best. One advantage, however, is that unlike a FICO score, the VantageScore uses the same formula at each of the CRAs.

So Now What?

Generally, knowing your score is only important if you either want to improve it or have a major purchase (e.g., home mortgage, refi, auto loan) on the horizon. In my view, just about all of the scores will give you a reasonable picture of your credit. If you want your FICO score, Equifax is your best bet. The downside is that it will cost you. For a free credit score, GoFreeCredit is a good option.

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Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

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