Secret Credit Scores

October 14, 2009 by  
Filed under Episodes

Not the real Beatles, like you may not have the credit score lenders use…

Secret Credit Scores Could Be Making Your Task More Challenging

Here’s the picture: You walk into a car dealer with your credit score and you say, “Hey, I’ve got a 750 credit score”.  Your goal: you want the best rate.  Right away, it can start to get a little confusing. First, the car dealer may ask you if you have a FICO credit score, if the answer is no, then you may be thinking you need to get your FICO score so you can have an apples to apples discussion.  Personally, I’ve seen a 50+ point difference in my TU FICO and TU non-FICO score. Then, you need to ask which FICO score you need.   Remember, there are three FICO credit scores used from the three bureaus of Experian, Trans Union and Equifax. Car dealers typically use just one of the scores [yes, mortgage lenders use all three because the transaction is bigger and the defaults hurt more].

But, does the confusion end there? Sadly no. The auto dealer is likely using something called the “FICO Auto Industry Option”. This is a scoring model that has been tweaked for risk specifically for auto loans. This might make sense to you, depending on where you sit in this great debate. Auto lenders want to assess risk for auto loans, so they want to tweak a general credit score model to be more predictive in auto loan situations. Credit card companies do the same thing in their credit score models. They have a bankcard score which gives more weight to how a user handle credit cards vs. say auto loans.

So, why all the secrecy? I’m not sure it’s meant to be so secretive, but rather this arose out of a need to predict risk better. Opponents of the use of credit scores for employment will argue that employment isn’t even a factor in credit scoring, so why use these scores at all — it’s not like they can be weighted for employment? Proponents say they still predict risk better than nothing. Still, the scores are secretive and secrecy is usually not so good for the user.

Having scenarios where users are confused usually leads to consumer harm. Sorry, but I have to believe that someone who is barely knowledgeable about credit scores might fall prey to savvy auto lender who knows how to twist the situation in their favor.

What should you do about running into a secret score?

  1. Walk in armed with as much ammo as you can get. That means that while their be a secret score in play, you are still better off knowing something about your credit and the rates that should equate to this.
  2. Get your FICO scores. Sorry, but a Vantage Score is just one more step removed. Credit Karma? Good for insights, but when you are ready to do battle, you want to best closest cousin score available to you and that’s going to be your FICO score.
  3. Know that the secret score is probably not that far off. Don’t get your confidence don’t that their might be an important swing in the numbers.
  4. If the difference between your FICO score and the industry-specific score does imply a different credit interest rate, don’t panic.  Often times, car dealers use different scoring models, so it’s worth it to check another auto lender to see if they have a different rate.  Reminder: you don’t have to get your auto loan via the dealer!!!  You have other options like your bank or credit union. One of these scores might be more aligned to the FICO score you have.

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2 Responses to “Secret Credit Scores”

  1. Thomas on January 9th, 2010 10:52 pm

    Thanks for lettings us know! You provide us a great service!!! I didn’t even know about these other scores.

  2. John on February 27th, 2011 5:42 pm

    Good article! However, you didn’t take the problem about credit scores far enough. These are my complaint:

    1. Experian won’t disclose their credit score to consumers.

    2. I have read articles and have spoken to customer servcie representatives form different credit bureaus who advised me that each credit bureaus has hundreds of different score models. So, when you purchase your credit score the relevance is not so good. It’s a poor predictor of what the lender will receive. I purchased two scores and two reports from Experian within two days of each other and their was a 152 point difference. But, there was no difference in the credit reports. Would you call that reliable? In my opinion, the credit scores that consumers purchase are defective products and are not valid predictors or reliable predictors of the credit score actually sold to the lenders.

    3. I have two installment accounts that are not being report on a regular basis. One has not reported for four months. The other had not reported for three months. So, my balances weren’t decreasing. When computing my credit scores I would wager that they are factoring my account balances into the score. I disputed this with the credit bureaus and instead of being corrected, the account were totally deleted from my reports. That decreased my score because I now only have two revolving account and no installment loans. I wonder if they factor deficient credit reporting by creditors and deficient data collection by the credit bureaus into the credit scores.

    4. Credit score analysis is a “trade secret” of the credit bureaus. Since they are a seccret there is no tranparency to the consumer. The game is rigged. There is more to this game than just a good history of paying your bills.

    5. Credit bureaus essentially don’t exist for the consumer. Their loyalty lies with the creditor and they are definitlely bias. It wouldn’t be illogical to assume that the credit bureaus could have a motive in deflating credit scores. Lower credit scores could translate into higher interest rates charged by creditors thus resulting into greater profit.

    6. Building credit can be harmful to your credit scores. When you apply for a loan, you will be penalized for a hard credit inquirey. And if it’s not a auto loan or a mortgage, you better not rate shop. That would mean increased inquires and a lower score. When the loan is reported to the credit bureaus, your credit is very likely to get another his because you have a new account. And many times when you pay off a mortgage, auto loan or other installment loans, your score could get hit again for having a decreased number of accounts. I’m sure that when the nuts fall from the trees, your score will take another hit.

    It’s probably healthy for consumers to take a high dose of cynicism before relying upon the credit bureaus.

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