WHICH Credit Score Matters?
You’ve heard of the Big 3 credit bureaus: TransUnion, Experian, and Equifax. Among other things, these companies collect consumer data that creditors consider relevant to the creditworthiness of loan and credit card applicants. The credit bureaus produce credit reports, which lenders can use to judge whether to extend credit to people like you and me. But because lenders are inherently lazy like most of us and don’t want to pay people to interpret credit reports, they often rely on a credit score in making lending decisions. But here’s the question: Which credit score do creditors most often use, and why should you care? We’ll get to that in a minute, but first a bit of background.
Credit Score Bonanza
Credit bureaus and other players have expended a lot of marketing energy whipping consumers into a senseless frenzy about the level of their credit scores. Their strategy: Create a new revenue stream by fomenting consumer obsession with credit scores, then create our own credit score and sell it to those same consumers who now, thanks to our marketing team, think that only hillbillies and Trump voters don’t know their credit score. Some companies now will trade their own credit score for your personal info instead of for cash. Hey, no harm in having your Social Security Number, address, and other personal information floating around in a lot of totally hack-proof corporate databases, right? Cause, you know, these companies know how to protect their systems from hackers. Just like Yahoo. And Target. And eBay. And LinkedIn. And… you get the picture.
(As I’ve written here before, I don’t know now and have never known my credit score. Why? Because I can’t figure out how merely knowing my score will help me improve it or otherwise benefit me. Instead I devote my energy to understanding what I can do to optimize my credit score. Using that knowledge in my day-to-day life will make my score as high as it can be—whatever it is!)
Credit Scores Are Not All Created Equal
But here’s the thing: Creditors use only a few “makes” of credit score. Just because Company A invents a credit score and markets it to consumers doesn’t mean lenders give a hoot or pay any attention to Company A’s credit score. And if lenders don’t use Company A’s score, of what value is it? That’s right: ZERO.
Something about fat cat credit reporting agency Experian getting fined may recently have crossed your radar. Turns out Experian had been falsely telling consumers from at least 2012 through 2014 that lenders used its PLUS [credit] Score. Not only were lenders not using PLUS, Experian’s score could differ significantly from the score the lenders were using. That means consumers could not rely on PLUS to judge the likelihood of obtaining credit, which pretty much makes PLUS worthless. The Consumer Financial Protection Bureau has fined Experian $3 million for deceiving consumers.
What’s the Most Popular Credit Score with Creditors?
By far, without a close second, the granddaddy of all credit scores—the FICO score—invented by the Fair Isaac Corporation is the most popular with lenders. According to its corporate owner, “90% of top U.S. lenders use FICO® Scores when making lending decisions.” (There’s more than one type of FICO score.)
Can you buy or get for free your FICO score? Yes—but please don’t. According to Consumer Reports, the FICO score that Fair Isaac sells directly to consumers for $20 a pop is not the same FICO score that it sells to creditors. Fair Isaac sells nearly fifty different FICO scores to lenders and only two to consumers.
The credit score bottom line: Spend your energy learning and incorporating into your life behaviors that will optimize your credit score. Spend no energy (or money!) tracking your actual credit score number.