Did you know that when you purchase a credit report you are getting what they call an Educational score? But when a creditor (such as a mortgage lender) looks at your credit score they see something different. In a recent study – Analysis of Differences between Consumer- and Creditor-Purchased Credit Scores – they found that 73% – 80% of consumers, were in the same score categories across the different scoring models. This means that the scores consumers receive will usually give them an accurate understanding of how creditors, using another scoring model, would perceive them. Most of the remaining consumers, 19 %– 24%, would likely have a moderate but meaningfully different impression of their credit score than would a creditor using the other score. A very small portion, 1% – 3%, would receive a very different impression than would a creditor using the other score.
The findings from the report suggest that consumers should avoid relying on scores they purchase as the sole basis for assessing their creditworthiness when making important decisions about obtaining credit. No consumer will know in advance whether the score he or she sees will vary significantly from the score a creditor sees. Thus, each consumer should be prepared for the possibility that the score he or she sees is meaningfully different from the score used by a lender.
In evaluating educational credit scores, consumers should also consider the following:
(1) Many scores exist in the marketplace. It is likely that many consumers incorrectly believe that the scores they purchase are the same scores used by lenders in evaluating their applications for credit. There are literally dozens of different credit models are used by lenders. FICO alone has over 49 credit scoring models.21 Consumers additionally can purchase a range of educational scores or VantageScores.
(2) Consumers should check their credit reports for accuracy and dispute any errors: Before shopping for major credit items, consumers should review their credit files for inaccuracies. Each of the nationwide CRAs is required by law to provide credit reports for free to consumers once every 12 months upon request. A consumer can obtain these reports at annualcreditreport.com. Consumers can get information on this and the dispute process at ask cfpb.
(3) Consumers should shop for credit: Some consumers are reluctant to shop for credit out of fear that they will harm their credit score. Many consumers are generally aware that inquiries by creditors can negatively impact their credit score. However, the potentially negative impact of inquiries on credit scores may be overblown. For example, FICO reports that its scoring models treat multiple inquiries made for either a mortgage, auto, or student loan within the same 30 day-window as a single inquiry. Even when credit inquiries are counted separately, as in the case of credit card applications, each additional credit inquiry will take fewer than 5 points off a FICO score. Twenty-two other scoring models such as Vantage also do not heavily weight inquiries. An inquiry will take 1 to 5 points off a Vantage score.23
(4) Providers of educational scores should ensure that the potential for score differences is clear to consumers: This study finds that for a substantial minority of consumers, the scores that consumers purchase from the nationwide CRAs depict consumers’ creditworthiness differently from the scores sold to creditors. It is likely that, unaided, many consumers will not understand this fact or even understand that the score they have obtained is an educational score and not the score that a lender is likely to rely upon. Consumers obtaining educational scores may be confused about the usefulness of the score being sold if sellers of scores do not make it clear to consumers before the consumer purchases the educational score that it is not the score the lender is likely to use.
To read the full report see Analysis of Differences between Consumer- and Creditor-Purchased Credit Scores