I‘m on a quest. Much like Indiana Jones and his quest for the coveted Holy Grail. Only, my quest is not nearly as dangerous, but it does lead you down many dark tunnels and great quests filled with mystery and suspense. I'm on a quest to find my real FICO credit score (cue Indiana Jones theme music….).
Okay, so this quest isn't that exciting. For me it was a quest because it took several days to get the answer I was seeking. You're probably wondering: why the obsession with my credit score? I already knew I had a decent score. I had learned that when we recently built our dream home and then again after we refinanced since our bank had to run our credit scores then.
So why am I now really obsessed?
A large part is attributed to my book, Soldier of Finance, that I'm working on. A good chunk of the book is dedicated to learning your credit score and various ways to improve or raise your credit score if you need it. What I realized was that the more I wrote about credit scores the more I learned I didn't know about them. In fact, I feel like instead of majoring in Finance I should have majored in “Credit Scores” because the whole system is confusing.
Why The Fuss? Some financial experts like Dave Ramsey say to not worry about your credit score. Personally, I disagree. Your credit score is the heart rate to your financial health. You don't want to obsess over it, but you do want to check it every once in a while to make sure your pulse (score) is still good.
First Stop: CreditSesame.com
One of the first sites that I visited to get my “free credit score” was CreditSesame.com. After retrieving my score here, which was 758, I realized that technically it wasn't my real FICO credit score.
What? Not my real credit score? Doh! (I'll explain this more in a bit.)
So if that's not my real FICO score, what is?
We just completed the building of our dream home earlier this year and refinanced when rates dropped a few months back, so I knew that my bank would have our most recent credit scores. I contacted my banker to see what scores they had on me.
This is what I got from them:
776 / 765 / 773 These are from all three credit bureaus. Also, these are mortgage report credit scores which will be lower then credit scores that you would pull.
Did you catch that? Look again:
….these are mortgage report credit scores…..
Mortgage report credit scores….what the heck is that? (this is the classic phrase that my Phillipino mother says all the time. Love you mom!) Now thoroughly perplexed, I emailed my banker to see exactly what that meant. His second response: (I'm sure he's loving me by the way)
I found out about a year ago, that Freddie & Fannie had been working with the three credit bureaus to set up a scoring model for the purpose of mortgage loan requests. The mortgage scoring is tougher then the normal consumer scoring. Both are FICO scores utilizing the same system, but as one example, consumer models don't give a lot of weight to collection items, whereas the mortgage scoring system does. People who have collection items on their credit will score lower with the mortgage scoring system then the traditional consumer scoring system. That's one of the examples, but since FICO is a proprietary system, the public knows very little about the full details that go into your score.
After I read the email, this was my response: Huh?
I knew at this time I was in way over my head.
Just like a typical male that won't stop to ask directions when he's completely lost, I trudged on hoping to find my answer of what my real credit score is. Next stop MyFico.com.
Note: After going through this process, I have also learned that CreditKarma.com is also another option in retrieving your free credit score. They pull your credit score from TransUnion.
Credit Scores at MyFico.com
Still curious I decided to actually purchase my credit score through MyFico.com. It cost me $25 bucks, but I didn't care. I was on a mission. (Note: I have since learned that I could have signed up for a free trial to get my credit score for free. Crap.)
Thinking there would only be only one true credit score, it gave me two. One from TransUnion and the other from Equifax, which were 779 and 770 respectively.
Really? Two Credit Scores?!
So here's what I'm looking at so far: 758, 776, 765, 773, 779, and 770. At this point I have no clue which one is the real deal. No more messing around. It was time to break out the big guns.
Contact the Expert (about freakin' time)
Looking to sort through the credit score maze, I contacted personal finance guru and author of Your Credit Score, Your Money and What's at Stake, Liz Weston and explained to her my situation.
First, Liz explained to me my Credit Sesame score. She said,
“It is true that the scores many consumers get aren't FICOs, and these “consumer education” scores can be 30 to 100 points higher than your FICOs.”
Okay, great! Consumer education scores. That helps a ton!. So in fact, Credit Sesame's credit score is just supposed to give you a general range of where your credit score is at. My score there wasn't too far off, so at least it gave me a good starting point. Now, what about the “mortgage report credit scores”
Liz had an idea but verified with a contact at FICO – nothing like going straight to the source! She states,
It was my understanding that most mortgage lenders use the classic FICO score, which is what you get at MyFico.com. The scores will be different day-to-day (and even sometimes intraday) because the information in your credit files is constantly changing.
I'm not sure what your banker means when he says Fannie and Freddie worked with the bureaus to changed the FICO formulas, since they (none of them, the agencies or the bureaus) wouldn't be able to do that. That's FICO (Fair Isaac's) purview.
But this wouldn't be the first time a banker or mortgage lender gave bad info. There's a whole chapter in my credit scoring book devoted to myths perpetrated by those who should know better.
She later confirmed that the banker was off in his statement. In my banker's defense, this stuff is really confusing – obviously. Liz adds,
“Fannie and Freddie don't do anything in concert when it comes to risk-evaluation tools, and neither do the bureaus, other than creating VantageScore as a would-be competitor to FICO (not that VS made much headway).
Fannie and Freddie are evaluating a version of the FICO called the FICO 8 Mortgage Score, but they have yet to tell the mortgage industry that they will accept that score instead of a classic FICO.
The FICO 8 Mortgage Score was introduced to lenders from Equifax in March but just became available to lenders from TransUnion and Experian last month, so your lender couldn't have been using it to generate scores from all three bureaus earlier this year.
The FICO 8 Mortgage Score does give more weight to a person's mortgage history, but not to collections. This is in line with other versions of the FICO, such as the one for the auto lending industry that gives more emphasis to a person's auto loan history.”
There you have it. This is probably more information than you eve wanted to know about your credit score, but at least now I have a better understanding.
Note: If you have a question for Liz, check out her site Ask Liz Weston. This lady knows her stuff. Thanks Liz for helping out!
Getting a Second Expert Opinion
“The consumer education score is worthless because no lender will ever use it. And because it is almost always higher than a FICO score, the consumer score gives a person an artificial sense of security about their credit score. They would be much better off getting the scores directly from FICO and ignoring the consumer scores entirely.”
Philip added that 100 percent of the credit scores that he reviews in his capacity as a mortgage broker have been based on the FICO score.
Okay, but I’m still confused. Where do TransUnion and Experian come into play?
“There are three primary credit-reporting bureaus—TransUnion, Experian, and Equaifax—who are responsible for collecting your credit information and applying a formula to the information: TransUnion, Experian, and Equifax. So you have a TransUnion FICO score and a TransUnion consumer score, and so on and so forth. When a lender pulls your credit score (and as I’ve noticed, this will always be your FICO score), the lender actually gets three scores, one from each of the three bureaus. The lender ignores the high score and the low score, looking at the one that falls in the middle, and assigning interest rates only.”
Philip went on to explain that only TransUnion and Equifax sell both FICO and consumer scores to the public. If you buy a score from Experian, it will always be the consumer score.
Assuming what I’ve written is true, I also suggest inserting this after: “It was my understanding that most mortgage lenders use the classic FICO score, which is what you get at MyFico.com. The scores will be different day-to-day (and even sometimes intraday) because the information in your credit files is constantly changing.”
This explains why the scores I got from MyFICO were different from the scores I got from the lender—they were pulled on different days. You can read more about how Experian pulled the plugged from allowing consumers to purchase their credit score at Credit Cards.com.
Credit Score Takeaways
The biggest thing I got out of this is that you have several different scores and they constantly change. I don't want you to become obsessed over your credit score like I did, but it is important for you to know.
As I went through this process, my intern was intrigued so he looked up his credit score and found it he was in the low 600's. Ouch! What was the primary culprit? He didn't have any credit cards or any credit history. His parents had warned him of getting into credit card debt, so he avoided them. Getting his credit score was an eye opening experience since he'll be soon graduating and joining the real world.
Have you had any credit score surprises? What did you do about it?