FAQ - Credit Scores

FICO is a particular brand of credit score. A credit score is a number that is used to predict how likely you are to pay back a loan in a timely manner. Most lenders use FICO credit scores to determine your loan qualifications and interest rates on a loan or credit card, and the credit limit.

FICO stands for the Fair Isaac Corporation. FICO was a pioneer in developing a method for calculating credit scores based on information collected by credit reporting agencies. Today, other companies also offer credit scores (“models”) called “Consumer” or “Educational” credit scores. Most lenders still use FICO credit scores when deciding whether to offer you a loan or credit card, insurance coverage, and in setting the rate and terms. Banks may also use FICO credit scores when approving checking and savings account applications.

Like all credit scores, FICO credit scores depend on the contents of your credit report. There are three major agencies that collect credit data -- Experian, Equifax, and TransUnion. Because the credit reporting data at each agency can be different, your FICO credit scores may be different depending on which agency’s data is used to calculate the score.

FICO also has variations of its basic scoring models tailored to different types of lenders (for example, home mortgages or auto loans). You could have several different FICO scores, even when they are all calculated from the same credit agency’s data.

The most commonly used FICO credit score for lenders is the Classic FICO credit scores – required by Fannie Mae and Freddie Mac, the standard bearers for the housing market. Since most lenders offer mortgages, most lenders use the Classic FICO credit scores not only for mortgages, but also auto and home equity loans, and credit cards. Once your identity has been validated during the sign-up process, My Credit Plan will display the Classic FICO credit scores from Equifax, Experian, and TransUnion.

Several other companies also provide “consumer” or “educational” credit scores that may give you some sense of your actual FICO credit scores. These “educational” credit scores are considered hypothetical because they are different from the FICO credit scores a lender would use. The differences can be significant. The CFPB published a report on these differences.

FICO scores range from 300-850 (except for some of the FICO 8 models which go to 900). Usually a higher score makes it easier to qualify for a loan and may result in a lower interest rate.

Like all credit scores, FICO scores can change over time according to your credit behavior.

Consumer Financial Protection Bureau, August 2014. http://www.consumerfinance.gov/askcfpb/1883/what-is-fico-score.html

My Credit Plan analyzes and provides a three-in-one credit report from the three major credit bureaus along with the Classic FICO credit scores. The Classic FICO credit scores is the most commonly used FICO credit score model used in lending.

On April 21, 2015 (and updated on June 25, 2015), the Consumer Financial Protection bureau made the following important announcement about the disclosure of the tri-merge credit report and FICO Classic credit scores to consumers by certified credit counselors.

Update as of June 2015: All three major credit reporting agencies (Experian, Equifax and TransUnion) will now allow nonprofit counselors to share credits reports, as well as the scores, with the consumer.

Millions of consumers will now be able to receive these credit scores and credit reports that nonprofit credit counselors purchase on their behalf.

Nonprofit organizations that offer credit counseling, housing counseling, and other financial counseling services buy credit reports and scores for the consumers they serve. These reports and scores help counselors engage in constructive conversations with their clients about steps the clients can take to improve their financial situation.

Until now, counseling organizations have generally been prohibited by their contracts with the credit reporting agencies from giving the consumer the credit report or score that they have purchased on that consumer’s behalf. For example, a nonprofit organization that purchases a credit report with a FICO credit score has typically signed a three-way agreement with one of the three large credit reporting agencies (TransUnion, Equifax, or Experian) and FICO, agreeing not to provide the report or score to any entity, including the consumer.

This no-sharing policy is common in contracts signed by business users of credit reports and scores. But when applied to consumer counseling, it limits a client’s ability to review the credit history provided by the counselor on their own and may make the consumer more dependent on the counselor to take steps to manage or improve her credit standing. We’ve heard concerns about this issue from counselors and consumers across the country.

FICO’s announcement today signals a change in this policy. FICO has reached new agreements with the three credit reporting agencies that will allow millions of consumers who receive nonprofit credit counseling, housing counseling, and other services to obtain a copy of the FICO score that these organizations have purchased. We’ve been working with industry to make progress on these issues and we are encouraged by this positive step. FICO has taken the additional step to create content to help these consumers understand the key factors that influence their credit scores.

As part of this ongoing effort, we brought counseling organizations’ concerns about restrictions on their clients’ access to credit information to the attention of the credit reporting companies and FICO and urged that these restrictions be removed. However, even with the policy change on FICO credit scores, individual contracts between the credit reporting agencies and counseling organizations still prohibited the organizations from sharing the credit reports with their clients. This restriction made it harder for counselors to do their job. And it kept the consumers they serve from benefiting fully from the credit information that the counseling service organizations have paid for.

We are encouraged that, as part of this ongoing effort to press forward on these issues, Experian, Trans Union, and Equifax have updated their policies. Nonprofit counselors that purchase credit reports on behalf of their consumer clients will now be able to share those reports, as well as the scores, with the consumer.

Consumer Financial Protection Bureau, June 2015.
http://www.consumerfinance.gov/blog/category/credit-scores/

No. There are many different types of industry-specific credit score variations. The Classic FICO credit scores are used in the majority of loan transactions, while the FICO 8 bankcard, credit score model is used by some credit card companies.

The three nationwide Consumer Reporting Agencies (Equifax, Experian, and TransUnion) each offer their own brand of credit score (called educational or consumer credit scores) based on their individual proprietary model. These scores are different from the FICO credit scores used by lenders.

Consumer Credit Scores are generated from entirely different calculations than those that generate the Lender’s FICO credit scores.

It is important to understand this point and to be careful in the interpretation of the results.

Our analysis has shown that in most cases, the Consumer “Educational” Credit Scores are different than the FICO credit scores - Consumer Credit Scores provide a different number than your Lender’s Credit Scores. Consumer Credit Scores are (all too often) followed by consumers; incorrectly believing that they are the same credit scores used by lenders. Consumer Credit Scores are never used by lenders and insurance companies to determine your loan qualifications, interest rate, and insurance premium. Since every point can matter in qualifying for a lower interest rate or insurance premium, for this reason alone we do not recommend clients track Consumer “Educational” Credit Scores.

There are times when your Consumer Credit Scores may improve, but your Lender’s FICO credit scores may decline. You may incorrectly believe your credit situation is improving; when in fact, it is not.

Consumer Credit Scores are marketed to consumers from a number of credit websites and even some lenders. Too often, these websites will never disclose to you that the credit scores being offered through their website, are Consumer Credit Scores. Look for the terms and conditions in such websites where they usually disclose the version of the credit score being displayed.

Lender’s FICO Credit Scores are usually disclosed to you only through a lender or a consumer credit counseling company such as FFEF / My Credit Plan. According to the Consumer Financial Protection Bureau (CFPB) statement in their September 2012 report, more than 90% of lenders use FICO credit scores to make consumer credit decisions.

This is an outline of the different credit scores and the different websites that offer them:

Credit Score Models Website
Equifax Credit Scores Equifax.com
Plus Credit Scores (Experian) FreeCreditScore.com
TransRisk Credit Scores (TransUnion) TransUnion.com, CreditKarma.com, CreditSesame.com, and a variety of other consumer credit websites.

These websites / companies often portray to consumers that they are the real credit scores and to check their “Free” credit score to determine their credit qualifications. Don’t be fooled. It is worth noting once again. A consumer is often misled thinking that these consumer credit scores are the same as lender credit scores. They are not. In addition, consumers are often misled that as long as these Consumer Credit Scores are going up, that their FICO Credit Scores are also improving. This is not always true.

FFEF advises all consumers to access and follow their lenders credit scores such as the ones found with My Credit Plan.

In most cases, the free credit scores are the consumer credit scores that are not used by lenders. If these credit scores are offered for free, they generally have no value to them.

It is best to not rely on them. Only follow Lenders FICO Credit Scores.

The CFPB stated in the September 2012 report that the three major Consumer Reporting Agencies have created their own individual credit score models. ©Equifax produces the ©Equifax Credit Scores; ©Experian issues the ©Experian Plus Credit Scores, while ©TransUnion offers consumers the TransRisk New Account Credit Scores.
The CFPB states, “A consumer can face harms if, after purchasing a credit score, the consumer has a different impression of his or her credit worthiness than a lender would. If the score leads the consumer to overestimate lenders’ likely assessment of his or her creditworthiness, the consumer might be likely to apply for credit lines that would not be approved, with a cost of wasted time and effort on both the consumer’s and lender’s part. Alternatively, the consumer may reject offers of credit that would be beneficial because the consumer’s misperception of his or her creditworthiness leads the consumer to believe that the offers are over-priced.”

The CFPB states that the level of accuracy between educational credit scores and lender’s credit scores is between 30 to 42% based on a lender’s assessment.

Lenders and insurance companies generally use between 8 to 10 credit score categories to determine loan approval, interest rates and premiums. 30-42% is not overly accurate.

Listed below is a comparison of an actual consumer who requested their ©FICO credit scores and compared them with several educational credit scoring models.

The differences in this example are given with the point differential from the lender’s credit scores.

Most lenders categorize interest rates incrementally every 20 credit score points 600-620, 621-640, 641-660, etc…. Even a one-point differential between the lender’s scores and any educational scores (660 educational credit score versus a 659 lender credit score) can be extremely costly on a mortgage, auto loan, student loan, or an insurance premium.

Credit Score Model Equifax Experian TransUnion
FICO Lender’s Scores 690 693 683
Equifax Educational Score 714 (+24) 718 (+25) 670 (+66)
Experian Plus Score 699 (+9) 676 (-17) 675 (+75)
TransUnion TransRisk Score 701 (+11) 686 (-7) 683 (+79)
VantageScore® 722 (+22) 729 (+36) 676 (+73)

Compare for yourself at the following websites to see the difference between your lenders credit scores and the educational credit scores. There may be a cost.

For lenders credit scores, visit www.MyFico.com.

For proprietary generic educational scores, visit one (or all) of the following websites and compare the difference with your lenders’ credit scores.

In most cases yes. The disclaimer is listed in their Terms and Conditions and usually states something like, “the custom ABC score may not be the same as the credit score obtained by a lender and is for educational purposes only.”

For example, one disclaimer states, “The ABC Score, with scores ranging from 330 to 830, is a user-friendly credit score model developed by XYZ Corp to help you see and understand how lenders view your credit worthiness. It is not used by lenders.”

Before purchasing any credit score or credit monitoring service, we strongly advise consumers to do their homework to ensure the score their buying has value.

Credit monitoring and identity theft protection companies offer educational credit scores.

Companies such as IdentityGuard® and CreditKarma® offer you the ©TransUnion educational credit score while LifeLock® uses the VantageScore® educational credit scores. Lifelock even states in its Terms and Conditions:

“The scores you receive with Identity Guard® are provided for educational purposes to help you understand your credit. Lenders use many different credit scoring systems‚ and the scores you receive with Identity Guard are not the same scores used by lenders to evaluate your credit.”

A three-in-one credit report is requested from the three major credit bureaus; Equifax, Experian, and TransUnion. As part of that credit report, the three Classic FICO credit scores are also requested. This type of credit report is commonly referred to as a “lender’s credit report” with the lender’s credit scores.

As part of an agreement with the Consumer Financial Protection Bureau in June 2015, the credit bureaus and FICO now allow FFEF to provide a copy of your credit report to you along with your FICO credit scores for those seeking assistance from FFEF

You should pay close attention to the credit scores that actually matter. Contact your lender to find out which credit score they use to determine your creditworthiness.

According to the Consumer Financial Protection Bureau (CFPB) statement in their September 2012 report, over 90% of lenders use Fair Isaac Corporation (©FICO) credit scores.

You can access your lenders credit scores through one of four possibilities:

  1. Visit www.MyFICO.com
  2. From a mortgage lender when you apply for a mortgage loan.
  3. Contact the respective credit bureau with a copy of the loan denial letter if you were denied credit.
  4. Contact the respective credit bureau upon notice of a change in loan terms (If you receive less than the best terms available).