The Credit Score That You See - NOT The Same As Lenders See

The credit score you receive may be much higher or lower than the one a lender uses when deciding whether to give you a mortgage, credit card or auto loan, a new government report finds.

One out of five consumers is likely to receive a score that is "meaningfully" different from the score used by a lender to make a credit decision, according to study from the Consumer Financial Protection Bureau that analyzed 200,000 credit files from the three major credit bureaus, TransUnion, Equifax and Experian.

As a result, many of these consumers receive either better or worse terms on mortgages, credit cards, auto loans and other credit products.

"This study highlights the complexities consumers face in the credit scoring market," said CFPB Director Richard Cordray in a statement. "When consumers buy a credit score, they should be aware that a lender may be using a very different score in making a credit decision."

The credit score a lender sees often depends on the type of loan or credit product they are considering. Lenders that use FICO scores the most commonly used score, could be looking at one of 49 different scores to determine how risky you are -- including a FICO auto score, a FICO bankcard score and a FICO mortgage score.

YOU HAVE  49 FICO SCORES 

While you receive only one type of FICO score, lenders can choose from a variety of scores based on the kind of loan you're applying for. So if you want an auto loan, the lender can look up your FICO auto score. Apply for a credit card and there's a specific FICO bankcard score lenders can use.

There's also a FICO mortgage score, an installment loan score and a personal finance score that specifically focuses on your history of using financing companies -- for example, if you've signed up for store-branded credit cards. Then there's the generic FICO score, which is the most widely used score and is calculated based on your history with all forms of credit.

Even though newer versions of FICO's scoring software are being used, many credit reporting agencies continue to make older versions of the software available to lenders -- adding to the overall number of FICO scores for each consumer.

"The lender is going to choose the [scoring] model they think is most appropriate for what the consumer is applying for," said John Ulzheimer. "FICO is trying to further differentiate the risk of doing business with a consumer generically versus for a specific product. For example, I care how you pay your auto loans for any decision, but I really care about how you paid your auto loan if you're applying for an auto loan."

These scores are for lenders' eyes only, said Ulzheimer. When you request your FICO score, you receive the generic version. And the score you get may be about 15 or 20 points higher or lower than the score the lender is using to screen you, said Ulzheimer.


The discrepancy between the scores lenders and consumers receive was the subject of a report issued last year by the Consumer Financial Protection Bureau that showed that scores may differ for a variety of reasons, including the use of different scoring models by credit reporting agencies and that lenders and consumers don't always get scores from the same reporting agency.

To more closely compare the scores lenders and consumers receive, the CFPB said it would obtain data about credit scoring from FICO and from each of the three credit bureaus.

Rod Griffin, director of public education at Experian, said Experian provides different FICO scores to lenders depending on the kind of risk they are trying to assess. And he said consumers don't need to see every single score, because they are all based on the same information contained in a credit report -- some scores just weigh certain types of lending information differently.

So just because a consumer is seeing a different score doesn't mean that a lender is looking at different information. 

"There's a tremendous focus on these numbers, but what's really important is the credit report -- your credit report is what's used to calculate all of those scores, and you control what's on your credit report," said Griffin.


And though consumers are being kept in the dark about many of the scores lenders are using to evaluate them, in most cases that 15- to 20-point difference in the score is not going to hold much sway when it comes to being approved or denied for credit, said Ulzheimer.

"If someone is a high risk, they're going to be a high risk for any product, and if you have a great [generic] score, you're going to have a great score for any product," he said.

Aside from FICO scores, which are the most commonly-used scores, there are a plethora of other credit scores out there -- like proprietary scores developed by the credit bureaus and scores you can get from private companies like Quizzle.com, CreditSesame.com or CreditKarma.com.

"The grand total number of credit scores is truly countless -- so while 49 FICO scores seems like a large number, it's really a drop in the bucket," said Ulzheimer. "The good news is that proper credit management transcends all credit risk scores. If you do the right things, you'll have a good score across the board.

NEXT POST: "What Happens To My FICO Score While I Have Items In Dispute?"

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How Tax Liens Affect Your Credit Score

Tax day 2012 has come and gone. If you’ve already gotten your tax refund, then congratulations! And if you had to write a check, hopefully it wasn’t too painful. For those of you who blew off your taxes or decided to play games with your returns, I’d like to introduce you to the phrase: tax lien.

A tax lien protects the government’s (either state or Federal) right to claim your property if you don’t pay your tax obligations. A lien can be attached to your money or your property. When the IRS or your state’s tax authority files a lien against you they do so as a public record. This means anyone, including credit bureaus, can see the lien.

All three of the major credit reporting agencies (Equifax, Experian, and TransUnion) report tax liens on their consumer credit reports as a matter of common practice. Once a lien has found its way to your credit reports, it’s not easily removed. In fact, tax liens have the potential to remain on your credit reports indefinitely. That’s because the “seven year rule" that applies to most negative credit items does not apply to tax liens.

A tax lien is considered a serious derogatory item and can lower your FICO scores significantly. And even when the lien has been paid or settled, it still has a serious negative impact to your credit scores.

The reason…the incident of the lien occurring is what’s problematic, not the current balance.
If you do end up with a tax lien on your credit reports then you can address them one of several ways;

Settle it

This is often referred to as an offer in compromise. This is just like a settlement of your defaulted credit card debt. You make an offer to the IRS and if they deem it to be of a reasonable amount, they’ll likely accept it. Once they accept the offer in compromise they will file a release of your lien. This does not result in the lien being removed from your credit reports. It simply updates it to show as a “released” lien. At this point you can add seven years to the release date and that’s when the lien will be removed from your credit reports.

Pay it

If you don’t have any sort of financial hardship justifying the offer in compromise then the IRS is going to want you to pay your tax lien in full. Once it has been paid in full, they will file a release of lien. The above credit reporting scenario applies to these released liens.

Request a withdrawal

Last February the IRS announced a new set of policies and procedures designed to entice taxpayers to pay their liens in full rather than offer settlements. Here’s the deal, if you pay your lien IN FULL, or enter into an installment repayment program that will eventually lead to your lien being paid in full, you can petition the IRS to withdrawn your lien, rather than simply release it. You’d use IRS form 12277 to apply for the withdrawal.
If you are successful getting your lien withdrawn then it will come off of your credit reports immediately. This is because the credit reporting agencies do not report withdrawn tax liens. This option has caused confusion with taxpayers and has lead to the following questions;

Removing the lien from your credit report

The IRS didn’t put the lien on your credit reports in the first place. They just filed it as a public record, which is how the credit bureaus got it. The IRS won’t help you get the lien removed. Once the withdrawal has been approved and filed, contact the credit bureaus and let them know the lien has been withdrawn. They’ll confirm your dispute and then remove the lien.

Will this work for state tax liens?

This withdrawal policy is an Internal Revenue Service policy and does not apply to the various state tax authorities. And while I’m not versed on the tax policies of all 50 states, I have not seen an example of this working for a state tax lien.

Is the policy retroactive?

I’ve been asked if this new withdrawal option will work for liens that were filed and then paid in full before the IRS’s announced their new withdrawal policy last year. While I can’t get an answer from the IRS on that front, I have had numerous consumers contact me with examples of successfully getting old tax liens withdrawn and subsequently removed from their credit reports. So yes, it does appear the policy is retroactive at least according to the evidence I’ve seen.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.

Next Post: Can your "Employment Credit Score" Hurt your chances on getting a job?

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Fantastic Article:    Reducing Debt in 2012

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Navigating the Three Credit Score System

From: Mint.com

Each of us has three credit reports housed by the three major credit reporting agencies; Experian, Equifax and TransUnion. And, for most of us those three credit files are scoreable.

Most lenders will make decisions using just one of our credit bureau risk scores.

That means when you apply for a credit card or an auto loan, the lender is going to buy one of your three credit reports and one of your three FICO scores (or, less frequently, one of your three VantageScores) to make their lending decision.

The only exception to the “one report for one loan” rule is in the mortgage environment. the mortgage lender will almost always pull all three of your credit reports, all three of your FICO scores, and then base their decision on your middle score.

How Widely Your Scores Can Range

Each of your credit scores is going to be different, primarily because the information in our credit files is never 100 percent identical.

Additionally, because of the common lending practice of only pulling one credit score, it’s almost a guarantee that lenders are going to see different numbers for us depending one which of our three credit reports they happen to purchase.

For example, my FICO scores vary by 24 points from my highest score to my lowest.

My highest score is based on my Equifax data and my lowest is based on my TransUnion data. This means if I applied for any loan outside of a mortgage and the lender pulled my TransUnion credit report they’d see my lowest FICO score. If that “lowest” score fell below the lender’s risk threshold, I could be denied the loan or approved but with less advantageous terms.

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Fantastic information. This is worth watching:

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8 Secret Scores That Lenders Keep Part 1

By Liz Pulliam Weston from MSN Money


Lenders track every last detail of your spending habits, and then use the data to estimate not just how big a risk you are but how profitable a customer you might be.


Recently my husband and I received nearly identical balance-transfer offers from our respective Bank of America cards. The offers were identical, that is, except for the rates we'd be given. He was enticed with a 0% rate. Mine was 2.99%.


We live at the same address and share the same income. We both have high credit scores (although his are, annoyingly, a few points higher than mine).


So are these different offers evidence of rampant sexism on BofA's part? Hardly. The pitches were the result of complex and largely secret scoring systems that most financial institutions use to boost profits while limiting losses.


You've heard by now of credit scores, the three-digit numbers lenders use to gauge your creditworthiness. Credit scores predict how likely you are to default on a credit account or loan; they're used to help set interest rates and terms.


What you may not know is that credit scores are just the start of the way financial institutions evaluate you, and they're not even the most commonly used scores -- far from it.


While a credit card issuer might check your credit scores once a month as part of its regular account review process, the same company probably checks other kinds of scores every time you pull out your plastic.


"Every single transaction has some sort of score being generated," said credit scoring expert John Ulzheimer, president of Credit.com's education services and author of the book "You're Nothing But a Number." "Generally they're checking whether the transaction is likely to be fraudulent, but there are other reasons as well."


You're being judged by the type of transactions you make, how you pay your bills, how much profit you generate for your lenders and a host of other factors. The scoring formulas might be created by the credit bureaus, third parties or the lenders themselves. Banks and other financial institutions are tight-lipped about many of the details of these other scoring systems, but they're used to determine:


* The kind of credit card offers you get.

* Whether your credit limits are raised or suddenly lowered.

* Whether your over-limit credit or debit transactions are approved.

* Whether your card issuer calls you about a suspicious transaction, blocks it or shuts down your account.

* How cooperative your issuer is about waiving fees or lowering your interest rate.

* How quickly your issuer calls you if your payment is late.

* Whether a collection agency contacts you about an old debt and how hard it pushes.


Your credit scores are just the start.


Here are some of the ways you might be scored, roughly following the life cycle of a credit account. You're very familiar with credit-risk scores, but the other eight rarely see the light of day.


Credit-risk scores: These are the credit scores most of us know. The leading credit score, the FICO, was created by Fair Isaac and ranges from 300 to 850, with scores over 700 generally considered to be low risk.


Response score: This score predicts the likelihood a consumer will respond to an offer of credit, such as a new card or a balance transfer offer. Credit card issuers use response scores to decide whom to target and how to customize offers to appeal to particular consumers, said Chisoo Lyons, vice president for analytic research at Fair Isaac, which created the leading FICO credit score as well as many other scoring formulas.


Application score: This score scoops up data from your credit application that's not included in your credit scores, said Ulzheimer, who worked for Fair Isaac and for credit bureau Equifax before joining Credit.com. That data include how much you earn, how long you've lived at your current address and how long you've worked for your current employer. Application scores are typically used in combination with other scores, such as credit and bankruptcy scores, to determine whether to open the account, what rate to give and how much credit to extend.


Bankruptcy score: Credit scores typically predict the chance you'll miss a payment in the next two years. Bankruptcy scores predict the likelihood you'll throw in the towel on your debt entirely and file for Chapter 7 liquidation or a Chapter 13 repayment plan, said David Rubinger, spokesman for credit bureau Equifax, which produces the leading Bankruptcy Navigator Index or BNI. BNIs range from 1 to 300, with the higher the score, the lower the predicted risk. Most lenders use both credit scores and bankruptcy scores, Ulzheimer said, to help assess the risk that you won't pay.


Revenue score: Lenders want to maximize the profitability of each account, and one way they do that is to gauge how much money each account is likely to generate.


Continue to 8 Secret Scores That Lenders Keep Part 2



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8 Secret Scores That Lenders Keep Part 2

Attrition-risk score: Attrition risk refers to the likelihood a user will stop using a card, and attrition-risk scores are typically used in combination with other scores to determine what to do next if you look ready to bolt. If your account generates a lot of revenue and is deemed at low risk for default or bankruptcy, for example, the issuer might aggressively try to keep your business by jacking up your credit limit, lowering your rate and pelting you with convenience checks. If your account isn't that profitable or is deemed risky, on the other hand, the issuer might just let you go.


Behavior score: Credit scores provide a snapshot of how a consumer is handling all of his or her credit accounts. Behavior scores, by contrast, typically focus on a single account (the one you have with that particular creditor) but take in a broad view. Does the user pay off her bills every month, carry a balance occasionally or frequently pay only the minimums on her cards? That information typically isn't available on a credit report, but is contained in the issuer's databases, along with other data that helps the score describe how she handles her account. A behavior score might be used in conjunction with other scores, such as credit or bankruptcy scores, to decide whether an overdue payment is an aberration (maybe he's traveling?) or a sign of impending financial crisis (maybe we should call the consumer today and find out what's going on).


Transaction score: These are the scores run each time you use your plastic to determine whether the transaction should be approved. Issuers are typically looking for signs the transaction might be fraudulent, but transaction data can be used in other ways as well (more on that in a minute).


Collection score: You've failed to pay for long enough that your card has been turned over to a collection agency. These agencies use collection scores to assess the likelihood that you'll be able to pay them and sort their list of debtors accordingly. Collection agencies watch for all kinds of evidence that your financial situation may be improving, Ulzheimer said, from better credit scores to another collector's account suddenly being reset to 0, indicating it's been paid off.


If, on the other hand, your credit is in the dumps or the amount involved is small, the collection agency may make minimal effort.


"Why spend time and effort to track you down if you're not likely to pay?" Ulzheimer said. "Probably the most cost-effective (tactic) is to write you a letter, put it on your credit report and wait for you to call them."


Waiting, watching, hoping...


As several of the previous examples show, lenders and others often combine different types of scores to assess you. Sometimes the evaluations become pretty sophisticated.


One scoring model sold to lenders, the TRIAD Transaction Score created by Fair Isaac, takes into account credit risk, attrition, potential revenue and patterns in the user's charging behavior that might indicate higher or lower risk.


Let's say you typically spent $1,000 a month on your credit card, usually on toys, clothes and eating out at family restaurants. Then one month your spending changes -- you still spend $1,000, but now it's to get cash advances, buy groceries and gamble at the local racetrack.

The scoring formula may decide you've gone from Stable Family Guy to Desperate Unemployed Guy and flag the issuer that you've become a higher-risk customer.


Instead of a single three-digit number, TRIAD generates three numbers. Typically the scores will include a credit-risk score and an attrition score, both somewhere on a scale of 50 to 999 with higher numbers being riskier, plus a dollar figure to indicate the account's potential revenue generation.


If the issuer decides the risk of your default outweighs the profits you generate, it might reduce your credit limit. If you're a profitable customer, on the other hand, the card issuer might wait awhile to see if your situation improves.


Yes, it is rocket science...


How issuers decide what to do with the scores depends on their companies' policies, and even those are often changing targets. Credit card issuers constantly tweak their systems to maximize profits and minimize losses.


"Those guys at NASA have nothing on the Ph.D.s who work for credit card companies," Ulzheimer said. "They're Mensa-level smart, and they are very, very sophisticated in the ways they use credit data."


Which is not to say issuers, or the scoring systems they use, never make mistakes. Case in point: an issuer sending two different offers to the same household, as they did to ours. Most issuers use software to make sure that doesn't happen, Ulzheimer said; they don't want us comparing notes. (Bank of America didn't return my calls about the issue.)


In fact, financial institutions in general aren't eager to reveal how they make the decisions they do -- and that's not likely to change soon. While you have a federal right to see your credit scores, that's not true with other scores, which lenders often consider proprietary information.


Is that a crisis for consumers? I have mixed feelings about that. You clearly need to see your credit scores, since they influence so much of your financial life across the board. But given how many of these other scores are in use, how different they are and how many ways they're applied, I'm not sure I really want to see them all.



Back to 8 Secret Scores That Lenders Keep Part 1



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