Unlocking your understanding of credit reporting is the best thing you can do for your financing. We are busting the biggest credit score myth in 2021.
The Biggest Credit Score Myth is the Score Itself.
With the explosion of the internet in the early 2000s, many companies attempted to capitalize the market on credit scoring. No one was able to put a dent into FICOs hold. The biggest reason was most large lenders had a long standing relationship with Fair Issac. Combine this with the three largest credit information providers charging a lot for data and overall security concerns, FICO was really the only game in town.
Flash forward to the end of the 2000s, and credit reporting agencies started creating their own scores and trying to sell them. The Vantage score did manage to score a few wins with lenders. However, FICO still held over 90% of the credit market share. The credit reporting agencies pivoted to doing what they do best, selling their data. Companies like Credit Karma and Credit Sesame started offering “free” credit reporting and credit scoring. The term FAKO (a portmanteau of FAKE and FICO) became common place with credit consultants but consumers believe the scores these sites would provide. Often times, these scores were 50 points (or more) different than what a lender would provide a consumer, and this caused much frustration.
Credit Card Companies Provide FICO and Everything Changes!
Half way through the previous decade, something changed. Major credit card companies partnered with FICO and started to provide various flavors of FICO scoring to consumers for FREE as a perk for using their company. While this created new issues, at least the score was likely a score than would be one that is used in some financial decisions. The largest issue remained, however. The biggest credit score myth was the score itself. Which score was being used?
Using the Right Scores for the Right Lending Option.
The issue facing most consumers is incompatible scoring. A consumer will head to the car dealership, with a couple print outs from Credit Karma showing their score is 668. When the lenders scores are pulled, they are shocked to see their mid score was 534. Wait, what is a mid-score? How come there are three scores? Why did Ford only pull Transunion and why is the score 498? Did the old repossession matter?
The answer is Credit Karma doesn’t use FICO. Additionally, even if you used a FICO score from your credit card provider, that score is not what is known as an Auto Enhanced FICO, which is what auto lenders will use. This score will penalize consumers with AUTO related issues more than a general FICO 8 score would.
How To Prepare Yourself and Protect from The Biggest Credit Score Myth?
There are a few things any consumer can do to prepare and make informed decisions with their next credit approval attempt.
- Purchase your entire slate of scores from MyFICO. FICO offers a consumer access to all 40+ of their personal credit scores, from mortgage scores, auto enhanced and insurance risk scores. It will cost you nearly 50 dollars, but if making a large purchase like home or auto it is well worth having.
- If you are not interested in paying for the scores, use ALL available free options to have the clearest picture possible. Grab scores from your credit card lenders, Credit Karma, NerdWallet and do comparisons.
- Get your FULL credit reports from AnnualCreditReport and compare information. If you know Transunion has a couple negative items but Experian doesn’t, look for a lender who only pulls Experian.
With the proper due diligence, you can prepare your knowledge and bust the biggest credit score myth!
