The reality is that you have hundreds of scores. Even if you’re just talking about FICO scores, there are different versions of the scores and different generations of them. [FICO scores, a product of Fair Isaac Corp., are widely used. There are the FICO scores consumers see, and then there are scores used by mortgage companies, auto lenders and bank card providers. Fair Isaac tweaks the formula from time to time, but companies may not always switch to the updated score. The latest version is FICO 9; FICO 8 is more commonly used.]
Wells Fargo, for example, may give me my Bankcard Score 2 from Experian. If I was to get a car, my auto lender might use Auto Score 8 from Equifax. We don’t have control over what scores the three major credit bureaus use [the third is TransUnion], and they might be very different from the one we are actually looking at. Bankcard and Auto Scores go from 250 to 900, for example, whereas the usual FICO score ranges from 300 to 850.
Can we find out what all those other scores are?
You can go to myfico.com and cough up about $60 to get FICO 8’s from each of the three bureaus and see the scores that are most used in mortgage, auto, and credit card lending. You can see your FICO 9’s as well, so you can see the range. The first time I did it, I was blown away—there was a 100-point difference between some of the scores. Which were all good or excellent, of course.The times I'd recommend buying your scores from myfico.com are when you're about to get an auto loan or lease, and when you want to get a mortgage. The FICO scores that are being used for mortgage decisions are several generations out of date, so the scores you may get from freecreditscore.com, or from bank cards that offer free FICO scores to customers, might not be in the same ballpark as the ones your mortgage lender looks at. Once you have the relevant scores, you can check on myfico.com to see what loan rates to expect. That's particularly important if you're getting a car, because dealerships are notorious for playing games with loan markups.
What are some of the biggest myths about credit scores?
One that keeps coming up is about how carrying a balance is good for your score. I don’t know where that one got started, but it just will not die. There is no advantage to carrying a balance over to the next month.
There is something now called trended data, and some credit card companies report who pays their balance down each month and who doesn't. They discovered that people who pay their balances in full are much less likely to default on a credit line. So Fannie Mae and Freddie Mac told mortgage lenders that if this information is available, they should use it in their decision in a positive way if a borrower is on the margin and might be denied. It could help push that borrower over to an acceptance.The way Fannie and Freddie instituted this, they said it can be used to help someone, not hurt them. Who knows in the future how the information will be used? If it’s predictive, it’s predictive, and someone is going to want to use it against you.
What are some other common misperceptions?
That checking your credit hurts your score. You really do need to know your credit score or at least be in the right ball park. People think that credit scores are more stable than they are. They actually move around a bit.
Just get a free VantageScore, which many credit websites offer, and monitor it every month. [VantageScores, a measure created by the three major credit reporting bureaus, compete with FICO scores.] If you skip one payment on your credit card, you can knock 100 points off your score. If you have a 780 score and you are 30 days late in paying, that can knock off 100 points. It takes a long time to get those points back. You can really screw things up overnight.