Credit scores: Which ones do lenders use?

• On Monday September 1, 2008, 3:00 am EDT

When your teenager gets his or her SAT scores, you know that the same numbers are sent to colleges. And companies that sell credit scores claim that lenders use these numbers to decide whether to lend you money and at what interest rate. Equifax, one of the big-three credit bureaus, touts the score it sells as the same score that lenders use most to qualify you for credit. But that might not be the only number lenders use.

You can buy your FICO score, a numerical assessment of creditworthiness developed by Fair Isaac, the company that invented credit scoring in 1958. But lenders often base their decisions on specialized credit scores that produce different results, says Julie Wooding, a senior scoring consultant at Fair Isaac. Those scores are not disclosed or sold to consumers.

SCORING YOUR CREDIT

FICO scores and similar credit scores, some of which include credit reports, are sold by Equifax, Experian, TransUnion, Fair Isaacs myfico.com, and other companies. The Consumer Reports Money Lab recently spent $130 on a batch of such scores for the spouse of a staffer and got 11 figures with a range of 72 points, judged to mean everything from fair to good to excellent. But score sellers say accuracy is critical: A difference of just a few points can put you in a higher interest-rate group and increase the cost of a loan.

Most people are familiar with FICO scores, available at www.myfico.com ($15.95 for one score, $47.85 for scores from all three credit bureaus). There are several models used to calculate FICO scores. "The version available on myFICO.com is FICO 2004," Wooding says. "If youre using a lender using FICO 98, theyll come up with a different score." Each credit bureau also uses FICO models tailored to its files, and the resulting scores can vary.

Lenders usually buy other proprietary Fair Isaac scores: Industry Option FICO scores, which give added weight to how youve handled past car loans; NextGen FICO scores, which are used to qualify subprime customers and weed out potentially bad accounts; FICO Expansion scores, which use non-credit-bureau data to rate people with no credit history; and specific models for credit-card issuers and finance companies. The scoring scales for those other models, as much as 150 to 950, are wider than the basic FICO range of 300 to 850.

Complicating things further, some lenders use custom formulas. When I was at Ford, we had 40 Ph.D.s in global analytics, and all they did was create credit scores, says Barrett Burns, president and CEO of VantageScore Solutions. The use of custom credit scores is widespread, says Art Spinella, president of CNW Market Research.

HOW TO BOOST YOUR SCORE

When you plan to apply for credit, be aware that your FICO score provides only a general idea of how youll be viewed by lenders. So dont rely on it as the definitive measure of your creditworthiness. Instead, keep your credit quality high by following these steps:

Copyright © 2004-2008 Consumers Union of U.S., Inc.