Nov
15

Buying Credit Scores Today May Harm You

By

Surprise.  Sophisticated buyers most vulnerable.  Yet everyone buying credit scores at risk per Consumer Financial Protection Bureau (CFPB).  What can you do?

In “Know Your Credit Score Now – Is This Possible?” I gave overview.  Suggest you review.  Today we dig deeper.  I outline possible harm, why scores vary and what action to take.

HARM

CFPB gives examples of how you can be harmed.  Keep in mind two facts on how lenders use credit scores.

1.  They set a minimum credit score to qualify for a loan.

2.  They use scores to determine the rate they offer you.  Better score equals better rate.

CFPB examples of harm you may be exposed to when you buy your credit score:

– When credit report you bought states your score is lower than it actually is, you may

+ Give up on buying a house

+ Spend tons on unneeded credit repair

+ Apply for mortgage from wrong lender and pay too much for your loan.

– When credit report you bought states your score is higher than it actually is, you may

+ Apply for prime-rate loan when you won’t qualify.  At best, you wasted time.  At worse, you could negatively impact negotiations on house or you may give up when disapproved.

+ You could turn down a reasonable rate offer (rates are score sensitive).

WHY

You can’t go out and buy a light bulb without more information (i. e. 6o, 75 or 100 watt for instance).  Yet you are expected to buy credit scores without a clear label.  All credit scores not the same.  Why do scores vary?

= Equifax, Experian and TransUnion are the 3 major credit bureaus.  Lenders may or may not report your account to all three which leads to different scores.

= Formula used to calculate scores differ.  Examples:

- FICO formulas calculate about 90+% of credit scores.  Most current formula is FICO 08, but earlier versions still in use.

- Formulas tweaked to accommodate each credit bureau.

- FICO has a mortgage specific product sold only to mortgage lenders; not available to public.

- VantageScores was created by the 3 credit bureaus to compete with FICO.  There are 2 different formulas.  Scores are sold mainly to the public.

ACTION

Is the situation hopeless?  Is there anything you can do?  Yes there is.

1.  Check your credit reports to make sure info is accurate.  You may not control the formula used to calculate your score, but you can control accuracy of data formula uses.  Use only site approved by government to get your free reports.  Score not included.

2.  Understand that scores sold to you are for ‘educational purposes.’  They’ll give you a good idea of your credit worthiness around 90% of the time.

3.  Buy scores from MyFICO.com.  Access your TransUnion and Equifax FICO scores here.  Experian won’t provide you with score calculated using a FICO formula.  This is as good as it gets.

4.  Save some money.  Since scores are for ‘educational purposes,’ calculate your own FICO estimate by using the FICO Credit Score Estimator.

SUMMARY

Focus on what you can control.  Verify info on your credit reports.  Estimate you score using Score Estimator.  Still want to buy?  Using only myFICO.com

Source: CFPB

Kathy Godin, Branch Manager & Award-Winning Loan Officer
(919) 789-9888
Where people, not computer robots, answer the phone.
Proudly Serving All of North Carolina

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