Credit scores were long something that lenders got to see and consumers only found out about later.
Now, pretty much anyone can take a look at their credit scores whenever they want to, but it's not clear which of those scores matter. And most scores that consumers see for free are not the same ones bankers are using to weigh customer creditworthiness.
Consumers remain confused by credit scores, the Consumer Federation of America reported on Monday. That is not surprising: With dozens of scores on the market, it's hard to figure out which ones count and what they mean. "It can be very confusing because there are just so many scores," says Stephen Brobeck, the federation's executive director.
A credit score is a numerical "grade" produced when the information on a credit report is run through a computer model, and lenders use them to judge creditworthiness of loan applicants. Borrowers with high scores typically are offered loans at lower interest rates.
Yet about 40 percent of those surveyed didn't know credit card issuers or mortgage lenders use credit scores to determine who gets credit and at what rate. And about 40 percent also responded, incorrectly, that age and marital status were part of the credit score calculation.
The multitude of scores doesn't help. There are more than 200 specialty scores currently offered to lenders. The scoring models differ from each other, and they are based on credit histories collected from the three market-dominating credit bureaus: Experian, TransUnion and Equifax.
Consumer-focused ads touting "free" scores are ubiquitous. But not all scores are created equal and consumers who depend on the wrong "free" score can hurt themselves financially. Thomson Reuters compared several of the more popular scores to see which ones were best for consumers, and found real discrepancies among them.
FICO STILL KING
The vast majority of credit scores used by lenders - consulting firm Tower Group estimates it to be about 90 percent - are FICO Scores calculated and sold by Fair Isaac Corporation. Nobody gives them away for free; you can buy two different versions of FICO scores (based on two different credit reports) for about $20 apiece from MyFico.com.
Even the scores that appear on MyFico.com may differ from specialized FICO scores sold to different kinds of lenders. An auto loan score might be different than a mortgage score, for example. The scores sold to consumers through FICO's myFICO.com site give "a very good approximation of any other FICO Score their lender may be using," said Anthony Sprauve, a spokesman for FICO.
But other websites, such as CreditSesame.com and CreditKarma.com offer free scores that don't claim to be FICO scores but do aim to be calculated in a similar way and are on the same 300-850 FICO scale.
What consumers can see on these sites tell you "what your score is likely to be or darn close to it when you're applying for a loan -- and that should be good enough," says John Ulzheimer, president of consumer education at SmartCredit.com.
Credit Sesame uses scores provided by Experian and Credit Karma uses scores from TransUnion.
Several other sites, including Quizzle.com and FreeCreditScore.com use what they call an "educational score" that is based on Experian data, and is on a different scale than the FICO scores. (FreeCreditScore, by the way, offers the 'free' score as a benefit to consumers who sign up for a $14.99 monthly monitoring service that must be actively canceled.)
A TEST SPIN
To get an idea of how different - or alike - these different scores are, Reuters asked a consumer (who asked not to be identified) to share two sets of paid and free scores a month apart.
In the first round, the consumer's FICO score (based on Equifax data) was 780 on a scale of 300-850. That compared to 774 on Credit Karma, which used TransUnion's TransRisk scoring system, 830 on Credit Sesame, which uses Experian's National Equivalency Score and 760 on Quizzle, which used calculations from CE Analytics Inc. All of those are top scores that would put the consumer in the lowest-risk, lowest-interest rate category.
A month later, the consumer's FICO score rose to 789, while the Credit Sesame and Quizzle scores remained the same as they were the prior month and CreditKarma's declined by two points.
At the same time, from a loan application, the consumer was able to get three FICO-generated scores provided to the lender: 789 using Equifax data, 812 using Experian data and 796 using TransUnion data.
That experiment revealed that even free approximate scores can be useful to the consumer who is loan shopping. Even though the scores will differ from each other, they are usually in a similar range, says Kenneth Lin, chief executive officer of Credit Karma.
The key is to keep an eye on your credit history since that is what the scores are built from, he says. "The big differences are going to come when data is wrong."