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5 Reasons Why Your Credit Score May Not Matter

Barry Paperno

One of the most common misconceptions consumers have about credit scores is that they only have one. In fact, there are many credit scoring models that all feed off of the same data that you see on your credit report.

As part of the Dodd-Frank Act, the Consumer Financial Protection Bureau did a study last year comparing the credit scores sold to creditors and those sold to consumers to determine whether differences between those scores put consumers at a disadvantage.

The study reported that as much as 73%-80% of the time, an “educational” score obtained from one of the many consumer websites is likely to place the consumer within the same “credit-quality category” as a creditor-purchased score — many of which are not available to consumers. While many reacted to the report with surprise that up to one in four scores for consumers are significantly different than the ones lenders see, some of us who have advocated for more score disclosure were surprised that the scoring models were even that accurate. Such results indicate a strong correlation (.90 out of a possible one) between the educational and creditor-purchased scores.

While not necessarily the intent of the CFPB study, these rather unexpected results reveal that there just may be too much emphasis being placed on credit scores nowadays, while the underlying credit report information and score factors that accompany most credit scores — both educational and lender-purchased — can be just as important, or more so, than matching the three-digit number a lender may be using.

With a goal of getting past credit scores by refocusing on credit report accuracy and using score factors for improvement, what follows is a list of five reasons why your score may not matter all that much anyway:

  1. If your credit is being reported accurately, just about any score based on your credit bureau information will provide a look into your creditworthiness as seen through the eyes of a lender.
  2. The conventional mantra of paying on time, keeping debt low and avoiding opening new accounts will not only help to improve any credit risk score, but also provides a great general financial management strategy to follow, score or no score. Understanding where your credit report is falling short is important to understanding how to improve your score. You should pull a free copy of your credit report annually at AnnualCreditReport.com. Also, Credit.com’s free Credit Report Card gives you a grade for each of the five major credit scoring categories so you know where you stand.
  3. In addition to credit bureau risk scores, lenders often use other types of scores, such as behavioral scores and custom application scores, which are not likely to be available to consumers under even the best score-disclosure scenario.
  4. Credit scores lose their freshness very quickly, since their reliability is based on the accuracy of the underlying data, which can change as often as daily. So, even if the consumer is using a score derived from the same formula as the lender’s, if it isn’t of the same vintage it’s not likely to be the same score.
  5. Credit score interpretation and other lending criteria differ from one lender to another, and can change frequently within the same lender’s credit programs. There is no realistic scenario where score “cutoffs” or other lending criteria will be available to consumers, so the mystery surrounding credit granting is all but guaranteed to continue.

Consumer access to credit scores over the past decade has helped consumers become more savvy and empowered than ever. Now it may be time to reassess the importance of credit scores as the main consumer empowerment tool, and instead refocus on the credit report, score factors and managing credit responsibly.

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