Think you have just 1 credit score? How about 3 credit scores? If you believed either of these previous statements to be true then you may be in for a bit of a shock. The truth is that you actually have hundreds of different credit scores, and that is no exaggeration.
Credit scores are products and like many products they are created and sold by competing companies. The primary 2 companies who create credit scoring models are FICO and VantageScore. In addition to competing models, there are numerous credit scores which are also created for different purposes. For example, there are auto industry adjusted FICO scores, mortgage adjusted FICO scores, bankcard adjusted FICO scores, and general purpose FICO scores.
On top of the different brands and different types of credit scores there are even different versions or generations of scores as well. The result, as mentioned, is hundreds of different credit scores which are currently commercially available. Some scores are used by mortgage lenders, some are used by auto lenders, and some are only used by consumers themselves.
What does all of this have to do with 2 of the major credit bureaus getting fined by the CFPB? Keep reading. It will all make sense soon.
Equifax and TransUnion Fined
Credit reporting giants Equifax and TransUnion recently found themselves in hot water with the Consumer Financial Protection Bureau (CFPB). The 2 companies were collectively fined $5.5 million plus ordered to pay over $17.6 million to consumers in restitution. The misdeeds? According to the CFPB the credit bureaus deliberately “deceived consumers about the usefulness of the credit scores they marketed.” Essentially, the CFPB took issue with the fact that Equifax and TransUnion did not clearly disclose that the credit scores which they sold to consumers were not the FICO credit scores which are typically used by lenders whenever someone applies for new financing.
The CFPB also took issue with the 2 credit bureaus for “lur[ing] consumers into expensive recurring payments with false promises.” According to the CFPB both TransUnion and Equifax falsely represented the credit scores they sold as “free” or “only $1.” However, consumers actually only received that free or $1 trial for somewhere between 7-10 days before being automatically enrolled in a monthly subscription program for credit monitoring services. The CFPB believes that the billing structure “was not clearly and conspicuously disclosed to consumers.”
Do All Scores Have Value?
In light of the recent CFPB ruling and with the large number of available credit scores on the market you might wonder whether or not it is a waste of time to check any credit score other than your “official” FICO score. Not so fast. There is actually no such thing as an official credit score at all.
Lenders do not even all use the same credit scores. As a result, if you were to have your credit scores pulled by 2 different lenders today you would almost certainly see 2 different sets of credit scores returned. (Remember, even if 2 different lenders are both pulling your FICO credit scores they probably are not checking the exact same version of those scores.) The scores both lenders checked might be similar, but it is highly unlikely that both sets of scores would be identical.
All credit scores actually do have value and can be useful tools as long as you understand their limitations and how they work. You should not expect the credit scores you pull online (whether they were free or whether you paid to access them) to match the credit scores your lender will pull the next time you apply for a mortgage. In fact, the 2 sets of scores could be drastically different. However, if you are consistently using those online credit scores to track your progress as you work to improve your credit then those scores can certainly be valuable and beneficial to you. If the online scores you are checking are moving upward then your FICO credit scores will most likely be doing the same.