2018-02-22T20:29:05+00:00 August 25th, 2016|Uncategorized|

FICO® vs FAKE-O™ Scores: Are you seeing what lenders see?

Over the last several years, a new set of players have joined lenders, borrowers, and credit bureaus in the credit system. These new players are credit report/score wholesalers, and they have taken the internet by storm and they don’t even offer FICO® scores. Many of these wholesalers are wholly-owned subsidiaries of the credit bureaus or large financial institutions.

Currently, there are two kinds of wholesalers who offer two very different types of credit reports: industry-specific FICO® score providers and FAKE-O™ score providers.

Industry Credit FICO® Report/Score Wholesalers

Various versions of credit scoring have been attempted by financial institutions for over the last 60 years. It wasn’t until the 1990s that Fair Issac® became the industry leader in consumer credit scoring. Fair Issac® is NOT a credit bureau—it is a completely separate company that sells scoring software to lenders. This software scores the data that lenders download from the credit bureaus when pulling a credit report. The three digit number that results from this software analysis is called the FICO® Credit Score.

Industry wholesalers provide mortgage brokers and mortgage lenders with mortgage-specific credit reports, to which mortgage lenders can subscribe and purchase. Delivery of reports and scores to your mortgage broker is a two step process:

  1.  A mortgage broker enters your information into the credit report provider’s software on their computer.
  2. The wholesaler’s software pulls your credit profile data from the three national credit bureaus and applies the mortgage-specific FICO® scoring software to your credit profile data and then delivers a mortgage credit report and the accompanying mortgage scores. These credit scores are legitimate credit scores—FICO® mortgage scores.

When we refer to this credit report/score being “weighted,” we mean that mortgage-specific FICO® software evaluates how you have treated your past mortgages. The score that is printed out on your mortgage credit report reflects this screening process.  At the time of this writing, Fair Issac®, the developer of the FICO® Scoring software, has 88 products to help financial institutions grade borrower trustworthiness according to purchase type.

By using industry-specific screening software, lenders lessen the risk of financial loss. FICO® scoring software have been developed for mortgage companies, auto dealers, credit card companies, health care insurers, telecom companies, and cellphone providers, among many others.

Internet Wholesalers (FAKE-O™ Scores)

Until recently, credit scoring was a well-kept secret. Many people were outraged when they found out they were being financially judged by a number that they not only didn’t understand, but had no control over.

As public outrage increased, the media started making a fuss about the then “secret” score that could make or break a lending decision. To remedy this situation, Congress ordered the credit bureaus to offer free credit reports once per year so consumers could monitor and take control of the information in their credit profile. But that didn’t solve the problem—it actually made things worse.

Consumers didn’t just want copies of their credit reports—they wanted access to their credit scores. Under the guise of fulfilling the mandate imposed by Congress, the credit bureaus began offering credit reports via the internet (up to this point, consumers had to receive their credit reports through mail). But being the professional profiteers that they were, the credit bureaus soon found that they could provide the Congress-mandated credit reports for free while charging a fee for the actual credit score. Unfortunately, the credit scores that they offered were completely bogus.

FICO® is the Leader

Today, over 90% all lenders use some version of the FICO® scoring software. But the credit scores that the bureaus began to sell to consumers on the internet were not the scores lenders used.  Any credit score that does not have the FICO® registered trademark is what we affectionately call a FAKE-O™ score. TrueCredit.com, FreeCreditReport.com, CreditReport.com, and most credit report monitoring services offered on the internet are FAKE-O™ scores and cannot be trusted to accurately evaluate what credit score lenders will see when they pull your credit report.

The only exception to this trend are the credit reports offered by myFICO.com. As the name suggests, the scores that are offered by this site are actual FICO® scores—28 of them. The beauty of the myFICO.com credit report is that it offers the same industry-weighted scores offered by mortgage companies, car dealers, and credit card companies, etc., but you can find them all in one place.

More importantly, you can also discover what your credit score is as calculated by ALL the versions of software FICO® that have been developed over time. Another well-guarded secret kept by lenders is the version of FICO® software they use to grade borrowers. While myFICO.com reveals ALL its various scores—past and present—lenders do NOT reveal which version of software they are using.

FICO® Competitors

The most prominent competitor attempting to replace the FICO® standard is called VantageScore®. It’s a scoring system developed by a consortium of all three credit bureaus that rates creditworthiness similar to school grades. It starts at 501 (the equivalent of an “F”) and tops out at 990 (A+).

We receive inquiries all the time where people say they already have an 800+ credit score, and whip out their Experian credit report to prove their point. But the score is artificially high because it is a VantageScore®. To estimate your FICO® score in comparison to the VantageScore®, simple multiply your VantageScore® by 86%. For example, if your VantageScore® is 805, your estimated FICO® score would be 692. This exercise is an estimation only. Each scoring system uses different scoring criteria and so the comparison will not be exact.

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CreditSense.com can help you make sense of your Fundability. That includes credit scores, credit report providers, and how to create and maintain an 800+ fundable FICO® credit profile.