October 23rd, 2012

CFPB Update: Credit Score Differences

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cfpb

The Consumer Financial Protection Bureau is at it again—this time over our favorite subject: credit scores. The bureau researched 200,000 credit files and found that there are lots of different credit score models, particularly when it comes to scores sold to consumers vs. scores sold to lenders.

Why does it matter?

The big news here is something that those in the industry have known for years—you have literally dozens of different credit scores. These scores vary by credit score model, credit reporting agency creating the score and factors used, among other things. This matters because it could stop perpetuating the myth that FICO is the only score out there. In fact, you have nearly 50 different FICO scores.

But before you start worrying that the credit score you see on Credit Karma might not be close to the one your lender will see, you should know that the CFPB found that credit scores correlate nearly 90 percent of the time. That means that if your score on Credit Karma puts you in the “good” range, that’s likely where you’ll be graded for other credit score models. The rates you’re offered on loans and lines of credit should be similar no matter which credit score model a lender uses.

What does it all mean?

There are a few things you should keep in mind when it comes to credit scores:

  • You don’t need to buy one. If most credit score models correlate, why spend $15 a month on a FICO score? Credit Karma CEO Ken Lin goes into more detail about this in his article “Why You Should Never Pay for Your FICO Score.”
  • Lenders use more than just your credit score. Remember that for many lending decisions, other factors are taken into account. Relying on just your credit score to tell you how creditworthy you are simply doesn’t work.
  • Good credit moves haven’t changed. You know the things to do for good credit health—make bill payments on time, keep your credit utilization to less than 30 percent, and avoid lots of hard credit inquiries. These actions will always be the best to keep your credit in good shape, no matter which credit score your lender uses.

Bottom Line: The easiest way to monitor your credit for free is with Credit Karma. You’ll get your truly free credit score, your free Credit Report Card, savings recommendations based on your credit, and more.

Read our past CFPB updates:

Credit Bureau Oversight
New Credit Card Agreements
Payday Loan Crackdown
Supervising Credit Bureaus and Debt Collectors
Upfront Credit Card Fees
Consumer Complaint Database

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Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

3 Comments

  1. Here is another FICO related myth: what works for one person works for all.

    Each of the 50 FICO scores mentioned above utilizes model splits; meaning each score may comprised of 16 different scorecards based upon profile characteristics.

    Kevin @ Credit Bureau Insider at 11:17 am on October 29, 2012
  2. Interesting, Kevin! I’ll have to look into that. Thanks for the comment!

    bethy at 2:43 pm on October 29, 2012
  3. There simply needs to be one score for all. It’s an expensive and exhausting task trying to keep up with all the information being reported to the credit bureaus on a daily basis especially when it’s reported erroneous.

    Credit scores are becoming more mainstream now than ever because people are more dependent on credit now then they were 20 years ago and the credit bureaus know this and use it to make money.

    There simply needs to be one system in place for lenders and that same system should be accessible to consumers. Having so many different Fico scores is just to unreliable and doesn’t make a lot of sense.

    SE7EN57 at 12:37 pm on December 22, 2012

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