Buying A Credit Score

The use of scores is growing, and now Congress is looking at how these numbers are created and used .

Everyone's got your number - a credit score, that is - and as a savvy consumer, you might want to find out exactly what they've got.

This three-digit number tries to predict whether you're a credit risk and can dictate the terms you get on credit cards, mortgage loans and insurance premiums. Once secret, scores are now widely pitched by companies - often for a price.

One problem: The score you buy might not be anywhere close to the one your lender or creditor uses. Even a small difference in scores could mean that you don't get the terms you expected. "They show you a score but don't tell you it's not the one that's used by the lender, or not even used by a majority of lenders," says Evan Hendricks, author of "Credit Scores & Credit Reports." "That ain't right."

Scores and credit reports wield increasing influence on our financial lives, and that's the reason they were the subject of a recent congressional hearing on how they are created and used. There's been a push on Capitol Hill to make credit scores more accessible. As part of financial reform now being debated, a provision in the House bill would allow consumers to buy the same scores used by creditors. And next year, federal regulations take effect that could make free scores available to consumers applying for credit.

Credit scores remained a mystery until about a decade ago, when legislative pressure starting forcing mortgage companies and credit bureaus to share scores with consumers. Now credit scores flood the marketplace. Fees run about $15 for a score and credit report, or $15 to $40 a month for a service that provides scores, reports and other features.

FICO is the oldest and most widely used score by creditors and lenders.
The three major credit bureaus - Experian, Equifax and TransUnion - four years ago created the VantageScore.
Consumer advocates say it's not broadly used by creditors, though TransUnion spokesman Steven Katz says VantageScore is used by many of the top financial institutions and credit card issuers.
There also are knock-offs or so-called FAKO scores that are purely educational and sold only to consumers, not lenders.
Creditors select the score they want to use. It could be one that's tailored for a specific product, such as autos or credit cards, and not sold to the public. Or they can supplement a score with their own model. Sometimes the score you buy closely matches what lenders use; other times, not so much.

It's not just that the score isn't the same. A score is generated by information in a credit report. Scores that look at different credit reports at different times won't yield similar results.

Mortgage brokers find that the scores a consumer buys can be 30 points to 100 points higher than the FICO score they use, says Liz Pulliam Weston, author of "Your Credit Score." That can mean "not only don't you have a good score, but you're subprime," she says. It doesn't take many points to change the credit terms you're offered.

Some creditors adjust terms every 20 points, Hendricks says. If you buy a score that says you're a 740 but the lender is looking at a score that pegs you at 720, the interest rate on your loan could be a quarter-point higher than you expected, Hendricks says.

If you're just curious, try one of the free online credit scores through Quizzle, Credit Karma and Credit.com.
But if you plan to refinance or make a big purchase using credit, buy your score at least three months in advance so you have time to improve your score, if necessary. (To boost a score, pay bills on time, avoid new lines of credit and reduce credit card balances.) Buy the FICO score because it's likely closest to the one your lender will use, credit experts say. Go to myFICO.com to get scores based on a TransUnion or Equifax report for $15.95 each. (Consumers no longer can buy a FICO score based on an Experian report, although lenders can get this).

Get both FICO scores in case the results vary significantly, a sign that one report holds more negative information on you than the other, Hendricks says.

"We focus so much on the credit score we forget the score is driven by the report," says John Ulzheimer, president of consumer education for Credit.com.

If the negative information is wrong, correcting it can quickly raise a score - and get you a better interest rate.
Credit bureaus generally must investigate disputed entries within 30 days and remove the information if it's wrong or can't be verified at that time.

But consumer advocates say fixing errors can be difficult. The Federal Trade Commission received 31,629 complaints last year about credit bureaus and the companies that supply information to them, making this category No. 11 on the top consumer complaints.

New federal rules might alleviate this problem.

Starting in July, consumers will be able to dispute information directly with the business that gave it to the credit bureaus, and that company must investigate and respond to the consumer within 30 days with its findings, says Pavneet Singh, an FTC attorney. The company must correct mistakes with any credit bureau that received the wrong information.

Access to credit scores also might improve. Currently, creditors must notify consumers if they are denied based on information in a credit report. Starting in January, creditors must tell consumers if something in their reports results in them getting less favorable terms.

Creditors will have two options: They can send a letter to the affected customer, who will be entitled to a free credit report, says FTC attorney Manas Mohapatra. Or, they can provide free scores to all consumers applying for credit. The latter option means even more consumers will have access to a credit score.

Of course, all this emphasis on credit scores has caused some consumers to obsess over their number.
"We are too focused on scores. It's kind of like our weight," says Linda Sherry, a spokeswoman for Consumer Action.

"People really do want to see how other people see them."