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Check the Label on Your Credit Score

There are those who are label-conscious and those who happily settle for the generic brand. When it comes to credit scores, your lender is likely the former.

In the banking world, the big brand of credit scoring is "FICO," an acronym based on the name of the company Fair Isaac Corp. (NYSE: FIC  ) . About 75% of mortgage applications are judged using the FICO scoring model. However, "FICO" is often used as if it were a generic term for "credit score." In the lending world, it's akin to calling the Beatles a "boy band."

Live or lip sync?
If you want your actual FICO-brand score, you can go directly to Fair Isaac's consumer arm, MyFico.com. The only credit-reporting agency that sells the FICO-brand score to consumers is Equifax (NYSE: EFX  ) .

The other two major credit-reporting agencies -- TransUnion and Experian -- each sell a consumer score based on credit-risk formulas they've developed internally. However -- and here's where consumer confusion can be excused -- each partnered with Fair Isaac to develop risk-assessment scores for business clients.

So to continue our boy-band analogy, TransUnion and Experian use the same record producer as the Beatles -- but only industry pros get to see those scores.

Here's the breakdown:

  • When you shop at TransUnion, you get a Personal Credit Score ranging from 300 to 850. However, the company sells its business clients a Classic FICO Risk Score (formerly known as an EMPIRICA score).
  • Experian's consumer score is based on its own PLUS Score system, with scores ranging from 330 to 830. Its business-to-business score is called the less-catchy Experian/Fair Isaac Risk Model.
  • At Equifax, you can buy your FICO score (scale 300 to 850), the same score (called a BEACON score) that is sold to businesses.
  • Finally, the new kid on the block is VantageScore (a product of Equifax, TransUnion, and Experian) designed to provide a single consistent score across all three major credit bureaus. (That's code for "designed to challenge Fair Isaac's dominance in the scoring field.") The scoring scale is 501 to 990 -- with grades A through F -- and it is currently only available to consumers via Experian.

Over at CreditBloggers.com, credit expert John Ulzheimer, a former Equifax and Fair Isaac insider, gave the bureaus a talkin' to and encouraged consumers to save their money -- or at least be aware of what they're buying: "I don't believe there's anything wrong with building a marketing score to be sold to consumers. ... The problem is that the consumer has been duped into thinking that the scores they bought are actually used by lenders and have some sort of relevancy in the lending world."

The reporting industry says that "directionally," the scores are still useful to consumers. And that's probably true. (If your credit file's a disaster, it probably isn't going to magically clean up nice when your lender pulls his version of your credit score.)

The final score
No matter what the scoring scale, all of these systems are designed to achieve one goal -- to see how risky it is to do business with you based on your past behavior.

You, too, have just one goal: to make sure that your credit file (what your credit score is mainly based on) presents the most accurate and flattering picture of you to the outside world.

The wash-and-care instructions for your credit are the same no matter what the credit-scoring label says. We generally know the makeup of your credit score: Your payment history accounts for 35% of your overall credit score. The amount of money you owe holds a 30% weight. How long you've been in the system makes up 15% of your final grade. The amount of new credit you apply for affects 10% of your score, and the types of credit -- retail accounts at Sears (NYSE: SHLD  ) or Federated Department Stores' (NYSE: FD  ) Macy's, installment loans, etc. -- has another 10% impact. (Here's more detail on how lenders keep score.)

Bottom line
The contents of your credit report are more important to you than the three-digit score is. If you're curious about where you rank in the lending world's "hot or not" contents, go ahead and spend the $5-ish to see where you stand. But if you want to see what your lender, banker, or car salesman really sees in you, go with myFico.com.

Dig deeper into credit scores and other personal-finance issues through Motley Fool Green Light, headed up by Dayana and Shannon Zimmerman. You can try out the service free for 30 days.

This article was originally published on June 20, 2006, as "Fake Credit Scores for Sale."

Dayana Yochim owns shares in none of the companies mentioned in this article. The Motley Fool has a disclosure policy.


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