As with just about any other product you can name, you have freedom of choice when it comes to buying your credit score. In fact, you have so much choice it can be baffling.
There are all kinds of credit scores being promoted to consumers, each with three digits, and each with its claims of unique benefits. Some are free, while others cost a few bucks.
How should you choose the right credit score? Here’s my advice: Get a credit score based on the model that lenders actually use to make credit decisions. That’s the best way of knowing how lenders will rate you when determining whether to grant you credit, and on what terms. The FICO Score, which is used each and every day by thousands of lenders making millions of credit decisions, is the one you need to know. Industry experts say more than 90% of U.S. lenders use the FICO Score to make credit risk decisions. No other score comes close.
Why is this so important? Imagine this scenario, which actually happened to a friend of mine. Wanting to take advantage of low interest rates, she decided to refinance her existing mortgage loan, and being a responsible consumer, she did her homework: she investigated the pros and cons of various home loan lenders to identify the most attractive loan package (rates, points, closing costs, etc.). She also checked her credit score to make sure she qualified for refinancing, and she was happy to learn that she had what was considered a “high” credit score.
So after doing her homework she went to the mortgage broker to fill out the refinancing application. The mortgage broker then pulled her credit report and FICO score as part of the process. So imagine how stunned she was when he came back and explained that she only qualified for an interest rate that was higher than she’d been expecting.
How could this have happened to someone who’d prepared so thoroughly? Unfortunately, it happens more frequently than you would think. The credit score my friend had obtained wasn’t a FICO Score; it was what’s known in the credit business as an “educational score,” meaning the model is not used to make actual lending decisions. Educational scores are based on different mathematical models from the FICO Score, and often use different ranges as well. So it’s not at all unusual to have an educational score of, say, 730 when your FICO Score is 678.
Now it’s true that there are multiple versions of the FICO Score as well, including versions for different types of credit products. But these versions are all based on the same underlying mathematical blueprint. So while your FICO Score can vary depending on which version your lender is using to make a decision, it’s by far the most reliable and accurate depiction of your credit health that you’ll find anywhere, and is the best way to help gauge how lenders will view your credit.
Perhaps just as important as knowing your FICO Score is knowing what factors can impact your score. Valuable financial educational content and other information about this is available – in English and Spanish – on www.myFICO.com, completely free of charge. In addition, hundreds of thousands of people participate in the free online community at myFICO.com to help each other learn about and improve their financial health. Their stories about what they’ve learned and the way it’s changed their lives can be inspiring and useful.
How can you learn your FICO Score? Well first, it’s worth noting that in certain circumstances, it’s possible to obtain your FICO Score directly from lenders for free. For example, federal law requires mortgage lenders to share with loan applicants the credit score(s) used in underwriting their loan application. Second there are other situations in which lenders are required to share the scores they use directly with credit applicants. You can learn more on ScoreInfo.org.
But really, the simplest way to learn your FICO Score, how it’s used, and what factors can affect your score it is to visit www.myFICO.com. There’s a modest fee, but in my view, it’s a small price to pay for the peace of mind you’ll have from knowing your FICO Score – the only score that really counts.
Tom Quinn is the Vice President of Business Development for myFICO, and has over 20 years of experience working with consumers, regulators and lenders and regarding credit related questions and initiatives.