How To Get The Right Credit Score
Imagine that you are going into a lender's office prepared to
apply for and receive a loan. You know what your credit scores
are and you even got one score from each of the three major
credit bureaus: Equifax. Experian, and TransUnion. You are
shocked when your loan is denied, or maybe you were approved,
but the interest rate is much higher than you anticipated. How
can that be you say? My credit score is good, I know I checked.
Maybe it's not as good as you think. It all depends on there you
got it and what kind of credit score it is.
The fact is there are several different credit scoring methods.
Credit scores calculated from the same credit reports can differ
substantially from credit scoring method to credit scoring
method. So how can you ever know what your credit score really
is? Well, luckily, 75% percent of lenders use FICO scores
exclusively and you can purchase FICO scores yourself--you just
have to know where to go. (http://www.myfico.com)
FICO credit scoring is a numeric method of scoring your credit
worthiness developed by Fair Isaac and Company. Your credit
score is a number between 300 and 850 that tells creditors how
likely you are to pay your bills. The higher the number, the
better it looks to potential lenders and creditors.
The three major credit bureaus each have their own version of
the FICO score: 1Equifax uses the Beacon system, 2TransUnion
uses the Empirica system, and 3Experian uses the Experian/Fair
Isaac system. Despite each credit bureaus' use of their own
versions, all systems are based the original Fair Isaac FICO
scoring method, so each credit score calculated with these
systems are generally called FICO scores. However, although most
lenders do use FICO scoring, some lenders may have their own
scoring methods.
Adding to the confusion is the credit bureaus themselves.
Recently, Experian revealed that the national average credit
score of its consumers is 678. This is very misleading to the
average consumer. When you buy your credit report and score
directly from Experians website, you are getting what they call
the "PLUS Score," which is NOT a FICO score, and is NOT used by
lenders anywhere. (Equifax is the exception--you can buy your
FICO score directly from them at their website; however, the
only place to get all three scores together is at http://www.myfico.com.) The 678
PLUS Score reported by Experian is actually the average of
consumers' PLUS Scores, not their FICO Scores.
It can be clearly seen that the PLUS Score (and all Non-FICO
scores) are useless. Not only that, but such hype misleads
consumers into purchasing their PLUS Score thinking that they
are getting the same credit score that their lender will use.
Non-FICO scores are worthless not matter what the credit bureaus
or any website selling non-FICO scores claim. Even a few points
difference in your credit score can mean confronting the reality
of the loss of thousands of dollars out of your pocket--a loss
that you probably didn't plan for. The next time you want the
most accurate credit score available, do yourself a favor and
get the industry standard: the FICO credit score.