The Credit Score You See vs The Credit Score Lenders See
If it feels like the deck is stacked against you, when it comes to your credit score, it’s possible it has been.
Many people who have been working to improve their credit score diligently check it before going to apply. This way they can know what to expect and wait to apply until their score indicates they will qualify.
Unfortunately, because of the practices of some reporting agencies, they may receive a surprise when they are declined because of their credit score. They may then wait to receive a letter weeks later explaining which agency reported the lower score. At that point, they may still have to work to find out what specifically kept them from being approved.
The excerpt below from The Atlantic published early in January 2017 explains how two of the largest credit reporting agencies have been misleading consumers for who knows how long.
In personal finance, practically everything can turn on one’s credit score. It’s both an indicator of one’s financial past, and the key to accessing necessities—without insane costs—in the future. But on Tuesday, the Consumer Financial Protection Bureau announced that two of the three major credit-reporting agencies responsible for doling out those scores—Equifax and Transunion—have been deceiving and taking advantage of Americans. The Bureau ordered the agencies to pay more than $23 million in fines and restitution.
In their investigation, the Bureau found that the two agencies had been misrepresenting the scores provided to consumers, telling them that the score reports they received were the same reports that lenders and businesses received, when, in fact, they were not. The investigation also found problems with the way the agencies advertised their products, using promotions that suggested that their credit reports were either free or cost only $1. According to the CFPB the agencies did not properly disclose that after a trial of seven to 30 days, individuals would be enrolled in a full-price subscription, which could total $16 or more per month. The Bureau also found Equifax to be in violation of the Fair Credit Reporting Act, which states that the agencies must provide one free report every 12 months made available at a central site. Before viewing their free report, consumers were forced to view advertisements for Equifax, which is prohibited by law. – The Atlantic
Which Scores Do Businesses See?
If businesses and lenders are not seeing the credit score for you that you received from the reporting agency what score are they seeing? The fact is that it could be one of many different scores. We’ll see how this happens in the excerpt below.
Before exploring the many types of scores and how they are used know this:
If you follow a few key guidelines for keeping good credit and stay consistent with payments, limiting how much credit you use and keep a good mix of types of credit, chances are you can keep your score on the rise and in good standing.
Now let’s look at what businesses see when they check your credit score.
“When you go from one business to another or one type of lender to another, they will likely use different scores,” explained Rod Griffin, director of public education at credit reporting agency Experian…
…”There are literally billions of bits of data that are updated in credit reports every day,” said Lynnette Khalfani-Cox, author of Perfect Credit.
Different lenders might even have their own version of your credit score.
FICO can create a customized score to tailor to a lender’s needs to evaluate borrowers, while some lenders might use their own credit score models, explained Griffin. There are also “boutique scoring companies” that will create scores for lenders.
He estimated that consumers can have hundreds of credit scores.
Auto lenders might weigh various aspects of your credit history differently than a credit card issuer or mortgage lender. For instance, a credit card company might look more at your history with revolving credit while a car lender could focus more on your repayment record.
Insurance companies can also come up with their own credit scores as a way to evaluate things like a customer’s likelihood to file a claim or pay a premium, according to Griffin. – CNN Money
Have you been working to improve your credit score?