When you buy your credit score, it's almost certainly not the same number your mortgage lender will see.
Your lender might see a lower score, or even one calculated on a different scale. It means you could apply for a loan thinking you deserve a low interest rate, but end up paying a higher one because your score wasn't as good as you assumed.
Confusion arises because consumers and lenders often see different credit scores. As if that didn't create enough of a misunderstanding, customers, lenders and credit bureaus each view credit scores from their own perspectives.
When these viewpoints clash, consumers get frustrated. One Bankrate reader complained to financial advice columnist Dr. Don Taylor that she bought her credit scores from two of the big three credit bureaus as part of her search for a mortgage, only to discover that the scores were based on a scale that, from her standpoint, misleadingly pumped up her creditworthiness.
She thought she was buying a FICO score, developed by Fair Isaac Corp., and used by almost every lender in the mortgage business. Savvy consumers know that the FICO score is on a scale of 300 to 850 -- the higher the better -- and that certain scores serve as dividing lines between subprime (high-rate) borrowers and prime (lower-rate) borrowers.
She had really bought her VantageScore, which was jointly introduced this year by the three big national credit bureaus: Equifax, Experian and TransUnion. The VantageScore is based on a scale of 501 to 990. If any mortgage lenders use it, they don't talk about it. The woman had a VantageScore of 668, which made her think she was a prime mortgage customer. But it turned out that her FICO score was 574, casting her into the subprime category.
It's as if she turned on the radio, heard it was 32 degrees outside, put on a coat and stepped out, only to find that the temperature was 32 degrees Celsius -- about 90 degrees Fahrenheit.
Bad news for others
She wasn't the only person who got a nasty surprise. Another Bankrate reader, who asks to be called "Bob from New Hampshire" because he doesn't want everyone to know his credit score, says he recently bought a VantageScore and it was 754. Soon after, he discovered that his FICO score was 681 -- a most unwelcome surprise. (He says he quickly boosted the FICO score 20 points after paying off a credit card.)
Bob feels that the credit bureaus are bilking consumers by selling the VantageScore. "If the score they're giving you here, you're paying hard money for, and it's not being used, what is the point?" he fumes. "If it doesn't have any practical value, they should disclose that upfront: 'This is not the widely used FICO score.'"
If you know where to look for them, you can buy the equivalent of FICO scores on the three bureaus' Web sites. TransUnion calls it a credit score, Equifax calls it a FICO score and Experian calls it a Plus Score.
Bureaus are expected to increase their marketing efforts for the VantageScore, and they say there's good reason: It's easier for the consumer to understand, and the bureaus use it as a teaching tool. Rod Griffin, manager of public education for Experian, says his company's VantageScore buyers are shown an explanatory Web page. "There's the scale -- ABCDF," Griffin says.
Someone with a VantageScore in the 600s can see that "a 601 to 700 is a D, by letter grade," Griffin says. "What a D means is it's a subprime or nonprime score, and those people fall into the bottom 38 percent of the population." The Web page explains that lenders are likely to offer D scorers "somewhat-less-favorable terms to compensate for higher default rates in this category." There are tips for raising one's credit score.
All well and good, but the VantageScore still confuses some people who are getting ready to apply for mortgages.
"They need to advertise in great big letters that this score is meaningless when they apply for mortgages," says Michael Moskowitz, president of Equity Now, a mortgage lender in New York City. "A lot of people are finding themselves in this situation -- they think they have this score and they find out the true FICO score is different."
What do mortgage lenders think?
People in the mortgage industry say there's no chance that home lenders will adopt VantageScore. They will stick with the FICO score because it has proven to be accurate. "With billions and billions of pieces of data, it's becoming more and more refined with each transaction," says Dan Green, mortgage planner with Mobium Mortgage in Chicago. "How is the industry going to turn its back on that?"
The credit bureaus are aware that VantageScore won't be accepted by mortgage companies any time soon, but they are marketing it to other industries, such as the credit card and auto industries. "When you get outside mortgage lending, it's a more open marketplace, and many different scores are used," Griffin says. Standardization might save money.
A little history: For a long time, the credit bureaus resisted letting consumers see their FICO scores. In 2001, California passed a law requiring the bureaus to disclose credit scores to residents of that state. It was easier to make the scores available to everyone rather than only Californians, so the bureaus flung open the doors. They quickly discovered that millions of consumers were willing to pay to see their scores.
But, the FICO scoring scale was counterintuitive, and bureaus had to share revenues with Fair Isaac. VantageScore was developed to address both of those issues.