I have a couple credit cards, and for more than a year, both have provided me with a free credit score (FICO score), updated about once a month. From what I know about the computation of credit scores,they seemed more or less accurate. Nonetheless, they are hard to compare because each credit card company’s FICO score is on a different scale. One is out of a maximum of 900, and the other tops out at 850. Which made me wonder if one was more accurate than the other, or if either reflected the score that lenders would use to evaluate my credit worthiness. The answer to the latter question, according to a recent legal settlement from the Consumer Financial Protection Bureau, is (most likely) no.
As reported by the Washington Post, the only credit score that matters is the one that lenders use to evaluate customers. And, importantly, that score might not match the “random” scores customers received from their credit card companies or free websites, such as Experian, Equifax, and TranUnion. Although those scores may be interesting, they ultimately have little bearing on the interest rate a customer is quoted, or when a customer’s application will be approved. This is because lenders use different models to calculate a customer’s credit score than Experian or credit card companies. And, perhaps not surprisingly, lenders’ models tend to calculate lower credit scores for customers than customers found online.
In short, don’t rely on the free credit scores you receive, or even those you pay for, to assess your ability to pay for the mortgage or car loan you are considering. Instead, build in a cushion. What lenders use may vary markedly from the credit score you used to benchmark loan payments, resulting in monthly payments $100 or more higher than anticipated. But, importantly, if the credit score your lender uses seems unduly low as compared to the score given to you by your credit card company, inquiry with your lender about it by asking what model is being used to generate your score.