Modesto Bee
last updated: August 31, 2008 06:18:03 AM
When a teenager gets his or her SAT scores, everyone knows that the same numbers are sent to colleges. And companies that sell credit scores claim lenders use the numbers to decide whether to lend someone money and at what interest rate.
Equifax, one of the big-three credit bureaus, touts the score it sells as what lenders use most to qualify someone for credit. But, according to the editors of Consumer Reports, that might not be the only number lenders use.
It's possible to buy a FICO score, a numerical assessment of creditworthiness developed by Fair Isaac, the company that invented credit scoring in 1958. But lenders often base their decisions on specialized credit scores that produce different results. Those scores are not disclosed or sold to consumers.
SCORING CREDIT -- Equifax, Experian, TransUnion, Fair Isaac's myfico.com and other companies sell FICO scores and similar credit scores, some of which include credit reports. The Consumer Reports Money Lab recently spent $130 on a batch of such scores for the spouse of a staffer and got 11 figures with a range of 72 points, judged to mean everything from fair to good to excellent. But score sellers say accuracy is critical: A difference of just a few points can put someone in a higher interest-rate group and increase the cost of a loan.
Most people are familiar with FICO scores, available at www.myfico.com ($15.95 for one score, $47.85 for scores from all three credit bureaus). There are several models used to calculate FICO scores. Each credit bureau also uses FICO models tailored to its files, and the resulting scores can vary.
According to CR, lenders usually buy other proprietary Fair Isaac scores: Industry Option FICO scores, which give added weight to how someone has handled past car loans; NextGen FICO scores, which are used to qualify subprime customers and weed out potentially bad accounts; FICO Expansion scores, which use non-credit-bureau data to rate people with no credit history; and specific models for credit-card issuers and finance companies. The scoring scales for those other models, as much as 150 to 950, are wider than the basic FICO range of 300 to 850. Complicating things further, some lenders use custom formulas.
CLAIMS AND DISCLAIMERS -- FICO is not the only credit score for sale. VantageScore, available from Experian for $5.95 and TransUnion for $7.95, is touted as more consistent and simpler than FICO scores. But VantageScore carries this disclaimer: "Your credit score may be different from the score used by a lender." Experian also sells its proprietary PLUS scores along with its credit reports. But, according to its terms of service, "the PLUS Score is not currently sold to lenders and is not an endorsement or guarantee of your creditworthiness as seen by lenders." CR's take? These credit scores probably aren't worth the money.
HOW TO BOOST A SCORE -- When applying for credit, be aware that the FICO score provides only a general idea of how someone will be viewed by lenders. So don't rely on it as the definitive measure of creditworthiness. Instead, CR recommends keeping credit quality high by following these steps:
Get credit reports from the three bureaus free at www.annualcreditreport.com six months before applying for credit, scrutinize them for errors and have any mistakes corrected.
Pay bills on time, keep credit card balances low, don't close the oldest accounts and pay more than the minimum. For those who finance vehicle purchases, handle those loans properly to ensure a high Industry Option FICO score.
When shopping for a car loan, ask the dealership finance manager for the Industry Option FICO score or NextGen score. Use the information to negotiate a better rate with the dealer or an outside credit union or bank.
To improve credit quality, pay down or pay off maxed-out credit cards and pay off any late accounts.
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