The Checkout

Credit Score Confusion

You can't get a loan today without a credit score -- a three-digit number that's based on your payment history, outstanding debt and the number and type of accounts.

Most lenders use the FICO credit score, developed by Fair Isaac Corp. 17 years ago. But now, the nation's three largest credit bureaus have developed a competing system, which they say will make it easier for lenders to determine a consumer's credit risk. It also will reduce the large score variations that are common among the three bureaus: Equifax Inc., Experian and TransUnion.

The three credit bureaus insist the new scoring system, called VantageScore, will simplify the credit-granting process. However, they have released so few details about it that industry officials and consumer activists said that the credit-application process could become more confusing for consumers, certainly in the short-term and possibly longer.

One reason: VantageScore will use a different numbering system than FICO. For FICO, scores range between 300 and 850; most people score in the 600s and 700s and anything above 700 is considered very good financial health.
VantageScore's numbers range from 501 to 990, with anything above 900 considered an "A;" between 800 and 900 a "B" and so on. A 700 would receive a "C" rating under VantageScore but would be considered top-notch under FICO.

Additionally, although the three credit bureaus are starting to sell VantageScore to lenders, the new scores won't be available to consumers for several months.

For more details read my story in today's paper.

And for more discussion, either post a comment or e-mail me at Tell me your credit-score tales. You can post questions as well, but given the paucity of information about VantageScore, I can't promise any answers, at least not right now. Maybe in a few weeks.

By  |  March 15, 2006; 7:15 AM ET Consumer News
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I had a problem with my credit score. I recently bought a car. I know my credit score with Experian and know i was in a good shape. But finance department of the car dealer said my score is so less that he can not give me an APR what i wanted and they refused to disclose the score to me saying they are not supposed to. If i need, i need to pay to FICO to get the score.
Anyway I, when told them i m not buying the car with this high APR, they came down to what i was looking for and i bought the car.
Looks like there is a big difference in the existing scoring system between the companies, which is already confusing enough and bringing in a new scale will not do any good except make people suffer.

Posted by: Parthi | March 15, 2006 9:16 AM

Your creidt is avalible for you to view if you are turned down for a loan or if you order your free one once a year. But the problem is you cannot see your fico score without paying for it. Just another Money Racket. You can look at your credit report but it will not help you when your score is whats considered. If fico is replaced with Vantagescore then the score should be made avalible to the consumer free.

Posted by: John | March 15, 2006 9:25 AM

Something that I find confusing, if an above average (what ever that is) number of credit inquires occurs, your credit score goes down? I ask several companies for bids on new office equipment and in the same time frame I was shopping for a new car, this created a lot of inquires. It appears that a lot of business automatically run credit checks on prospective customers. Some ask permission, most don't.??????????
A confused consumer.

Posted by: Howard Sewell | March 15, 2006 9:28 AM

This seems very confusing from a consumer perspective.

To my understanding, this is how credit scoring works: The FICO system is actually a credit formula devised by Fair Isaac Corporation -- feed credit data into the formula and a score comes out the other end. Up until now each credit reporting agency has used that system to compute credit scores. However, because each agency uses slightly different data, when they feed that data through the FICO scoring system, they naturally come out with slightly different results -- you get a different score from Equifax than TransUnion, although hopefully not too different. And lenders look at at least one of the FICO scores from the credit reporting agencies in deciding on your loan approval, interest rates, etc.

It appears that the credit reporting agencies now want to cut Fair Isaac out by teaming up to devise their own scoring system. While they are touting it as good for consumers in that there will be more consistency between the scores each agency reports, in actuality they are creating a competing system to the FICO scores that consumers may have gotten used to.

A war for the lending market may be about to begin -- and the winner will ultimately depend on which system financial institutions embrace. If lenders want the FICO scores to remain and don't like the VantageScore system, the reporting agencies will be forced to return to FICO scores and scrap their new venture. If lenders embrace the new system, it could be disastrous for Fair Isaac.

While it may be interesting to see which system wins out, from a consumer perspective, this could be a bad thing while the battle goes on. Who do you get your credit score from? Is your lender using FICO scores or the new VantageScore? If there is a problem on your credit report, do you have more hoops to jump through in order to get it straightened out?

This has the potential to create quite a mess.

Posted by: Justin | March 15, 2006 9:48 AM

Parthi, the line you got from the dealership was not based on your credit score. It was based on the bet that you wouldn't know your own credit score. Your dealership was playing you. They do it all the time. They are trying to get you to take as high an interest rate as possible, so they will give you a higher offer to see if you will take the bait. I told my dealership what I could get on the market and you could see the wheels turning in the finance guy's head trying to figure out how little he would have to go lower than the figure I quoted so I would bite. He went down a quarter point. I said no. He went down another quarter point. If I had more time, I probably could have worked him down even more.

When dealing with dealerships, walk away. If they let you walk, come back, that is their best offer. You have to do it a number of times. Firstly, when you are settling on a price. You have to walk away two or three times. Next, when you are dealing with the options people, if you want any of them. That is usually one or two times. And finally, when you deal with the finance guy. But here you have to have alternative financing lined up so you have something for comparison.

Posted by: Robert | March 15, 2006 10:21 AM

Why not consolidate all three credit bureaus so that their entire focus will be on having a single accurate record? I don't understand why they operate independently when they are dealing with the same body of consumer information. It just confuses credit reporters who may see erroneous information, and also confuses consumers who have to deal with three corporations to dispute wrongly reported credit weaknesses.

Posted by: Dremain | March 15, 2006 10:36 AM

I happen to be aware of my FICO score(s). I also know several small tidbits about how creditors review that information. First, some companies use the lowest of the scores provided by the 3 major credit reporting agencies. Some companies use the average of the 3 scores combined. And, finally, I know for a fact (because my banker told me so) that most finaicial institutions; including mine, use their own method of score based on information provided on the various credit reports (depending which agency they use) and you presonal banking and finacial habits.

The bottom line is, know you score(s) and always be aware of whats on your credit reports.

Posted by: Michelle | March 15, 2006 11:15 AM

Cha-Ching, the cash register rings again! These agencies are a business run for profit so it makes sense that confusion would reign. Yes, "knowing your FICA score" is essential when negotiating a deal but when everyone is using a different system based on various cryptic formulaic differences, it gives lenders the wiggle room they need to maximize their profit and it provides a mouthpiece for these agencies to differentiate themselves from the pack. Nothing more, nothing less, no matter what they claim. The system is not tailored for serving the consumer and even though as a California resident I am entitled to one "free" credit report a year from each bureau, it does not give me the blessed, holy, all-unifying FICO score that each lender seems to have their own interpretation of. You also have to send in a written request and they make it seem like you have to pay them to get it.

The only true answer is to be a credit fascist and never let anything slip, hello auto bill pay, or else everyone will be angling to take advantage of any, minor infraction.

Posted by: Bobby | March 15, 2006 11:47 AM

FICO scores are based on how long you've had credit and timely payments (how you manage your CREDIT). It does not look at cash flow, net worth or % savings (how you manage your MONEY). If the new scoring system would include something about how you manage you money, then it may encourage people to save more and take on less "bad" debt. If not, I agree with the other comments about adding to the confusion and another "service" to pay for.

On buying a car, I did all my research on the web (Consumer Reports, rebates, price, options), did test drives at a credit union tent show (low pressure), picked out the features and sent out my want list to selected dealers over the web and arranged my financing through my bank. I was in and out of the dealership in about an hour with no bs and got a good deal with the rebates. It was the smoothest car-buying experience I have ever had.

I pull my 3-in-1 (all 3 agencies) once a year that includes 3 scores and they usually vary within about 20 points. The report also shows what companies have accessed your report and gives you pointers on improving your score.

It is everyone's responsibility to be an educated consumer!

Posted by: Terry | March 15, 2006 12:55 PM

Actually, the Fico score is calculated differently at each bureau to take advantage of data elements unique to the bureau in order to have the most effective score possible for that bureau. Using the same formula at each bureau is likely to result in a less effective score for lenders. Unfortunately, the Fico score was not designed to be easily understood by consumers. It is an analytical tool for fincancial institutions.

Most consumers get confused trying to understand exactly what a "FICO 675" means. And actually it may mean different things to different lenders using different bureaus. Fair, Isaac always has recommended each lender calibrate the score for their own use. In fact, the federal regulators also require individual calibration and validation.

I only see this new score as adding to the confusion.

Posted by: Mike | March 15, 2006 12:57 PM

Here's the simple overview of a FICO score:
Previous credit performance (35%)
(a calendar of your payments)
Current level of indebtedness (30%)
Current reported balance divided by credit limits
Time credit has been in use (15%)
Opening date (older is better)
Types of credit available (15%)
Installment loans, revolving accounts, debit accounts
Pursuit of new credit (less than 5%)
Requests for more cards/loans (this can only hurt you)

As I understand the various scores, the proprietary data & differing formulas creat differences between the scores. Even under a Vantage Score system, you're going to see some variance because the companies don't share new data (ie; reports of a new car loan that you signed up for in their region). They do this to try and create captive consumers (if Equifax has all the data for Texas residents, they hope Texans will prefer to buy reports from them). Because of this, if you challenge an item on your credit report, you need to challenge it with each agency.

Posted by: Anonymous | March 29, 2006 12:30 PM

I recently paid off my house and discovered my credit scores dropped as much as 43 points. There were no other changes in my accounts. Why?

Posted by: Edwin | May 11, 2006 10:50 AM

If you don't like your credit score, start your own credit-scoring company and give your self whatever score you'd like.

If you think car dealers should give you a better rate (as though they don't get paid for selling your loan to whomever has the supposed rate you're getting) then start your own dealship and lend to your customers at whatever rate they want.

Or even better, pay with cash.

Posted by: Knuckahead | August 19, 2006 5:31 PM

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