When checking credit scores, the average American is greatly mislead. I can tell you from my experience even the majority of lenders believe that there are 3 bureaus and 3 credit scores. Both are false. There are other credit bureaus such as LexusNexus which lenders can optionally pull at any time. However most loan products are judged based on the information provided by TransUnion, Experian and Equifax. This DATA is then calculated by a third party companies algorithm and then entered into a risk model. Essentially judging you against a group of your peers. They further this concept with score carding. With FICO there are 12 score cards. Meaning you will be put in 1 of 12 folders with other individuals with similar credit and judged upon that. Often times someone with more negative credit can score higher than someone with less negative credit based on how they rank in their individual score card. The most commonly used algorithms for lending are created by Fair Isaac Corporation or FICO for short. Founded in 1956 to help measure consumer risk, they sold over 10 billions FICO scores in 2013.
FICO creates models for lending industries only. Typically used in Mortgage, Auto, Bank Card and Insurance. The need for a consumer scoring model arose and was meet in 2006 through a joint Venture between the three main credit bureaus. Vantage models compete with FICO but are rarely used for lending purposes. The major use for Vantage scoring has risen hand in hand with the evolution of the online credit tracking sites. Currently the most popular site would be CreditKarma.com. This site offers a free report but utilizes the Vantage 3.0 Model. My experience is this model averages around 40 points higher when compared to a FICO Mortgage score. I always recommend http://www.identityguard.com and http://www.scoresense.com for credit checks when looking for a close to accurate score. If simply looking for the information reported on your report or when waiting to see a change take place, creditkarma.com tends to be my preference. I do not ever recommend annualcreditreport.com or .org.
Score Ranges
- Classic FICO 300-850
- NextGen FICO 150-950
- Equifax Beacon 300-850
- Experian 330-830
- TransUnion Experica 150-934
- VantageScore 501-990
Another area individuals tend to get in to trouble is believing their scores are judged ubiquitously on a 350-850 scale. As this graph represents, that is far from the truth. It is very difficult to compare an Auto to a Mortgage score and have reliable comparisons. even more difficult to compare to Insurance or Bank/Credit cards. Don’t put to much faith in that free score you get in a monthly email from your credit provider.
How many Algorithms are there?
While the numbers are always updating. To my current knowledge there are 56 total FICO scoring models.
MYFICO.COM is the ONLY place you can get your true FICO credit scores for a specific industry. Say you are interested in a mortgage. If you simply rely on those free FICO score give to you by Discover, Bank of America or many alternative online sights, in every scenario I have ever scene, you receive a FICO 08 model score. This model is not used in Mortgage lending. 90% of my clients are mortgage related clients so this information is useless. They want to find out what their alternative mortgage scores are. There are 2 ways to accomplish this. Have your credit pulled through a hard pull at by your qualified mortgage professional or have a soft pull done at http://www.myfico.com. When you do so, you will STILL need to take to time and research there site looking for your Mortgage Industry scores. Once you do this, you will have exactly what your mortgage lender will pull in almost every case. As long as other components of your credit history has not changed. Credit can change daily.
CreditKarma – Yes I recommend CreditKarma but only in specific scenarios. CreditKarma is a fantastic “What and When” site. Are these my accounts? Do the credit limits look correct? Do I have any collections? Had my payment on my credit card balance posted yet. These are all great benefits to CreditKama and useful to both the average individual and the lending professional.
http://www.privacyguard.com is the site I most frequently recommend for a normal tracking website. Do you want some analytical tools to see what will happen if you pay a card down. Are you concerned about identity theft and interested in an email if an inquiry is taken out in your name. Would you like a close approximation of what your mortgage or auto scores are. If so, then I recommend spending a little extra cash and joining privacy guard for these services.