There are so many various credit scoring methods that the average person is totally confused and bamboozled.
Let me show you how and why.
Credit card companies, as a service to the customer, will give you a credit score. (Please remember: one score means NOTHING. I have seen scores on one report vary by as much as 125 points)!
CreditKarma gives you two credit scores – Equifax and Trans Union, but they are based on a scoring system that is rarely used: the Vantage score.
Very few people even have a basic understanding of credit scoring, much less the various methods that are employed.
Let’s say you go to a credit monitoring service like Experian.com. You sign up and at the top of the credit report is a FICO score – from The FICO 8 model, and it is generic, meaning the score is not weighted for any particular purchase. (This score means nothing until you know what you are purchasing because every score is different – for a home loan, a vehicle, credit cards or revolving debt, insurance, apartment rentals, etc).
Let’s take a look at how credit scoring and the various FICO scores are different, depending upon the model that used and the frightening deceptions that are out there.
I am basing the information I’m giving you based on one credit file from Experian on one individual I will call Maryann.
Generally, FICO scoring ranges from 300 to 850.
In the particular case I am using as the example, based on this particular report from this credit monitoring system, they utilize FICO 8 as their generic score. Maryann’s score is reported as 662. Thinking that she has been told she needs a 640 score to qualify for a home loan, Maryann applies. She is rejected.
Why? Because mortgage credit reports use three different scoring methods to qualify for a home loan: FICO 2, FICO 4, and FICO 5.
To go on, if she was applying for an auto loan, her score would be 685, and this would be based on the FICO auto score 8 method. If she were to apply to a company that utilizes FICO auto score 2, her score would be 668.
If Maryann was applying for a credit card, her FICO bank card score 8 would be 660. If the company she was applying to was utilizing the FICO score 3, her credit score would be 620. If the company was utilizing the FICO bank card score 2,her score would be 603.
Are you confused yet?
So, based on one credit profile, depending upon what this person was applying for, be it a home loan, auto loan, or credit card, and the credit scoring model used and the Bureaus utilized (remember, with the exception of a home loan, all bureaus are not used to determined credit worthiness), Maryann’s scores ranged from 603 to 685.
FICO 8 (Credit Monitoring System): 662
FICO 2 (Used for a mortgage): 603
FICO 4 (use for a mortgage): Unknown
FICO 8 (AUTO SCORE): 685
FICO 2 (Auto score): 668
FICO 8 (Bank Card): 660
FICO 3 (Bank card): 620
FICO 2 (Bank Card): 603
This is all using the same data, same person, same day. You do not have one number – one score.
And we wonder why there is so much confusion in the FICO credit scoring arena.
If you don’t understand the rules, how can you play the game?