What is your "real" credit score? If you have purchased your credit score from multiple sources, you will probably find a wide discrepancy in numbers. How can you be sure which one is real?
The credit scores are all real; they just represent different things. Remember, they are all estimates.
Most people consider the FICO credit score as the "real" credit score. The majority of mortgage lenders and other credit sources use this score to evaluate your credit risk. The FICO score is created by proprietary software from Fair Isaac and Company (FICO) and is currently produced by myFICO.com, the consumer division of FICO.
FICO receives information from the credit reporting agencies (primarily Experian, Equifax and TransUnion) and uses its own formula to produce the FICO score. However, Experian, Equifax and TransUnion use other rating systems to evaluate the same information and produce their own credit scores.
Generally, the score you receive by purchasing information through one of these agencies is not a FICO score – they have their own competing system known as VantageScore. The credit scores produced by the reporting agencies are generally used for consumer reference purposes as a relative check on credit. They are not likely to be the ones used by lenders, although they are based on the same information (thus the name "FAKO").
Imagine that you take a math test and submit it to be graded by twenty different teachers. Some teachers assign different point values to different questions. Others grade on the curve. Still others throw out certain questions. You end up with twenty different grades. However, the only one you care about is the one that is used to determine whether you pass or fail.
So it is with credit scores, with one break in the analogy. Most of the time the FICO score is the "teacher" that determines whether you "pass" or "fail," but you cannot be completely sure.
The only absolute way we know of to be sure you are getting a true FICO score is to obtain it through myFICO.com. If anyone else claims to have a FICO score, dig into the version of FICO that they use. Because FICO is a software algorithm that is constantly being updated (currently at version 8), you could legitimately be receiving a "FICO" score that does not match the one you get from myFICO.com because an older software version was used.
In the end, your "real" credit score is a bit like Santa Claus – a fictional concept with real meaning that everyone understands but applies slightly differently in his or her own household. (Apologies to parents whose kids read this.)
The real message is that you have no one true credit score – not even the FICO score, although the FICO score comes closest – because your potential lender may be using data from a different credit reporting agency or a modified FICO scoring version – or not even use the FICO score at all.
How Do You Track Your Credit?
We suggest starting by getting your annual free credit reportfrom AnnualCreditReport.com and look for any errors or discrepancies in your information.
Periodically purchase a credit score from whichever group you trust, or find a separate method of acquiring a regular score, such as is reported with a Discover card – but understand where that score comes from and the method used to acquire it. Use that score as a general indicator of any trouble.
Finally, six months or so before you make a large purchase such as a home, get your credit score from myFICO.com and one other source as a sanity check. If you know the lender uses a particular source, include that source. It may save you time and money by identifying potential snags in your approval process.
In short: yes, Virginia, there is a real credit score. A thousand years from now, nay, ten times ten thousand years from now, credit scores will continue to be used by lenders to evaluate loan applications. (Apologies to the New York Sun.) However, by then it may not be a FICO score.
Photo ©iStock.com/KirbyHamilton
