Getting your FICO credit score before you apply for a loan is
important because most lenders use FICO
scoring system to evaluate loan applications. This is to make sure that there is no uncertainty caused
by different judgment between you and prospective lenders. But, is that
true?
Have you faced the following situation?
You apply for a loan and you're sure there will be no problems because you've pulled your credit
reports. You even got one score from each of the three major credit
bureaus: Equifax, Experian, and TransUnion. But you are shocked to find
that
your loan is denied, or maybe you were approved, but the interest rate
is much higher than what you anticipated.
One of possible reasons is your credit score is not as good as you
think. It all depends on where you got your credit rating and what kind
of score it is.
FICO Credit Score and Credit Scoring Methods
There are many different credit scoring methods. Credit scores
calculated from the same credit reports can differ substantially from
credit scoring method to credit scoring method. How do you ever know
what your credit score really is? Well, luckily, 75% percent of lenders
use FICO scores exclusively and you can purchase FICO
credit scores yourself.
FICO credit scoring is a numeric method of scoring your credit
worthiness developed by Fair Isaac Corporation. Your credit score is a
number between 300 and 850. It tells prospective lenders how likely you are to
pay your bills. The higher the number, the better it looks to potential
lenders and creditors.
The three major credit bureaus each have their own version of the FICO
score: Equifax uses the Beacon system, TransUnion uses the Empirica
system, and Experian uses the Experian/Fair Isaac system.
Even though each credit bureau uses their own versions, all systems are
based the original Fair Isaac FICO scoring method. Each credit score
calculated with these systems are generally called FICO scores. Although most lenders do use FICO scoring
system, some lenders may
also use their
own scoring methods.
There is only one place where you can get your FICO score from all three
bureaus and that is at www.myfico.com. If you order your credit score
from anywhere else, be aware that these scores can differ
considerably from your FICO credit scores.
The Non-FICO Credit Scores
Recently, Experian revealed that the national average credit score of
its consumers is 678. This is very misleading to the average consumer.
When you buy your credit report and score directly from Experian
website, you are getting what they call the "PLUS Score," which is NOT a
FICO credit score, and is NOT used by lenders anywhere.
The 678 PLUS Score reported by Experian is actually the average of
consumers' PLUS Scores, not their FICO Scores. Clearly, the PLUS Score
-- and all Non-FICO scores -- are useless. Not only that, but such hype
misleads consumers into purchasing their PLUS Score thinking that they
are getting the same credit score that their lender will use.
Non-FICO scores are worthless no matter what any website selling
non-FICO scores claim. Even a few points difference in your credit score
can mean the loss of thousands of dollars out of your pocket -- a loss
that you probably didn't plan for. So, the next time you want the most
accurate credit score, get the
industry standard: the FICO credit score.
