Tag Archives: Credit Scores and Reports

Why knowing your FICO Score is important: What’s the difference between credit scores out there?

The following post has been sponsored by our partner, FICO. The analysis and opinions in the story are our own and may not reflect the views of FICO. Learn more about our editorial policy

If you recently applied for a new credit card or other kind of consumer loan from a major bank or credit union, there’s a good chance the lender viewed your FICO® Score and may have shared with you the FICO Score obtained at the time of application.

While many lenders have ongoing programs to share updated FICO Scores, you may have also seen free educational three-digit credit scores through lenders or other companies.

Most big credit card issuers offer some kind of free score to customers. Some lenders, such as Discover, are even more generous, offering free scores to anyone willing to supply their information. Discover offers a free FICO® Score to the general public, while some educational sites and card issuers share VantageScore.

But what is the difference between the versions? Why are they different when applying for an auto loan or mortgage or applying for a credit card? Also, what is the difference between FICO® Scores and educational credit scores?

Sallie Mae’s research released in 2019 found that one’s credit score is not top of mind for many young adults noting that many are less likely to be aware of their FICO® Score and the factors that impact one’s score, let alone what sets their different scores apart.

Here’s a closer look at the most widely used consumer credit scores, how lenders use them and what makes each score unique.

See related: Which credit scores do mortgage lenders use?

How credit scores are used by lenders

For nearly three decades now, consumer credit risk scores have played an important role in lending. They not only help lenders efficiently assess/gauge new borrowers, they also give other interested parties, such as landlords or cellphone companies, a window into your credit health.

Most lenders use third-party credit scores, such as the FICO® Score (used in 90% of lending decisions), for soft credit checks before you’ve even submitted an application. A lender will then use these scores to help assess if the applicant meets the lender’s credit criteria. Most lenders also use internal credit risk tools to help assess an applicant’s creditworthiness and determine a borrower’s terms.

For example, a lender may use a FICO® Score distributed by credit reporting agencies in conjunction with their own internal scoring models.  These internal risk tools may take into account additional financial information included in your application, such as your income and housing payment.

(Contrary to some persistent credit myths, your income is not shown on your traditional credit reports, nor is it included in your FICO® Score.)

See related: How debt-to-income ratio affects credit card applications

Which credit score is your lender considering?

It varies by lender. There’s a good chance, though, that your lender is using some version of a FICO® Score, since FICO continues to be the most widely used credit score. FICO has designed various FICO® Score versions that are used by different industries due to different requirements. For instance, across the three credit bureaus, FICO® Auto Score 8 is widely used in auto financing, mortgage lenders often rely on FICO® Scores 2, FICO® Score 4 and FICO® Scores 5, and credit card issuers tend to check FICO® Bankcard Score 8 or FICO® Score 8.

FICO is considered the standard in credit scoring, trusted by lenders for decades. FICO is an independent data analytics company, meaning it’s not a credit bureau and not controlled or owned by any of the three major credit bureaus (Equifax, Experian and TransUnion). It has been an industry standard for over 30 years.

the FICO® Score Open Access program (if your lender is enrolled). This way, you will be able to stay on top of your credit score and it is a free resource.

Otherwise, you will find out which score a lender used if the lender declines to make an offer of credit or offers less-than-the most favorable terms because of your credit score. Lenders are required to disclose the score that influenced the outcome of your application and key factors (if declined). The lender must also provide you with brief explanations of their decision.

What influences varying credit score models?

It depends on the score. Technically, there are many different types of FICO® Scores, in addition to educational credit scores that are intended specifically for consumers who want to get a quick read of what their credit health might be, rather than provide the precise same number that lenders will review.

It’s also important to remember that credit score developers revisit the credit score models on a regular basis following changes in data or consumer behavior. However, lenders have the option to migrate to newer credit scoring models or use multiple FICO® Score models for different credit products so you may wish to inquire what FICO® Score version your lender will be using as part of the credit decisioning process.

For instance, while broad-based scores address the vast majority of applicants, credit scoring models that use alternative data sources such as FICO® Score XD that utilizes telecom data are available for entry-level credit products (reliably expanding credit access for over 200 million consumers), if there’s insufficient data at the credit bureau to provide a traditional FICO® Score.

The FICO® Score 8 and Score 9 models (the most widely used versions by lenders) rely on information that appears in your traditional credit reports, such as your loan payments and accounts. The UltraFICO™ Score, on the other hand, allows consumers to connect their checking and savings accounts cash flow data to potentially improve their score based on positive financial behavior.

Credit score versions matter

Making things a bit trickier, newer versions of your credit score may also look different from older versions of the same score, due to revisions in the way the scores are calculated. For example, a newer version of your credit score may treat a recent late payment with more weight than an older version.

As a result, the parts of your credit history that count most toward the success of your application will not only depend on the type of credit score that a lender uses. It may also depend on the version of that score your lender is using.

FICO® Score 10, which was released in 2020, is the first FICO scoring model to incorporate trended data, and the UltraFICO™ Score is the first score to consider recency and frequency of bank transactions and the consistent amount of cash on hand.

Similarly, the VantageScore 4.0 model expands from prior versions by placing significantly more weight on your total credit usage and your debt-to-credit-ratio than on your payment history. But VantageScore 3.0 – which is still in circulation – places more weight on your overall payment history than on any other component of your score. In addition, VantageScore 4.0 gives less weight to medical collections and it ignores new collection accounts that are younger than six months.

this page for the list of authorized FICO® Score retailers, as well as institutions and lenders that share FICO Scores with their customers through the FICO® Score Open Access program.

Bottom line

Although the term “credit score” is often used interchangeably, no matter what version is used, there’s no such thing as a universal score. The truth is you have many different credit scores – including from the same scoring developer.

But despite the differences between scores, the basic components of a good credit score remain the same: pay your bills on time, limit your credit usage, don’t close your oldest revolving account and don’t go wild applying for a whole bunch of credit at one time.

If you follow those basic rules of thumb, you should be able to build a credit score that you’re proud to show off to any lender.

 

Source: creditcards.com

How to dispute an error in your TransUnion credit report

The economic uncertainty caused by the COVID-19 pandemic has left many people concerned about their finances.

That makes it more important than ever to keep an eye on your credit report, and report any errors you find to the three main credit reporting agencies.

Complaints about credit reporting agencies filed with the Consumer Financial Protection Bureau soared from 2018 to 2019. The majority of complaints were centered on incorrect information on credit reports and problems related to ongoing investigations.

Last year, more than 154,000 complaints about credit reporting agencies were filed with the CFPB. They made up almost 45% of the total complaints filed with the bureau. In contrast, they comprised less than one-quarter of complaints in 2018.

Of the three credit reporting agencies – TransUnion, Experian and Equifax – TransUnion racked up the most complaints. Of those complaints about TransUnion, 24,800 were related to incorrect information on a credit report and 8,300 involved problems with the agency’s investigation into an ongoing issue.

Almost 70% of the complaints about incorrect information involving TransUnion revolved around information belonging to someone else being included in the complainant’s credit report.

More than three-quarters of the complaints about ongoing investigations involved the agency failing to correct errors on reports.

Incorrect information on your credit report can reduce your credit score, which could result in you being charged higher interest rates on credit cards and loans. You could also be turned down if you apply for new credit.

See related: How to apply for a credit card and get approved

Request your credit report

If you want to check if your credit report is correct, you can request a copy from TransUnion, as well as from Equifax and Experian.

Because of the COVID-19 pandemic, TransUnion, Experian and Equifax will provide you with your credit report for free each week until April 20, 2021. You can request your reports through the site AnnualCreditReport.com. The credit reports don’t include your credit score.

Normally, you’re allowed one free copy of your credit report from each of the credit reporting agencies every year under the federal Fair Credit Reporting Act.

Requesting a copy of your report will not impact your credit score.

The CFPB says common errors to look for in your credit report include:

  • The wrong name, address or phone number on your report
  • Accounts belonging to someone else, whose name is similar to yours
  • Accounts opened under your name due to identity theft
  • Accounts that have been closed but are listed as open
  • Accounts incorrectly listed as late
  • The same debt listed more than once
  • Incorrect balances on accounts
  • Incorrect information reappearing on the account after it was already corrected

How to file a dispute

If you spot a problem with your credit report from TransUnion, you can file a dispute online, at the company’s website. There is no charge for disputing an item.

TransUnion credit report dispute center

You’ll need to set up a free account with TransUnion and provide some basic information about yourself, such as date of birth and home address, so the company can verify your identity

On the website, you can dispute everything from the name and address that is listed on your credit report to information about your credit cards and mortgages to your bankruptcy records.

Your credit accounts include information on the date you opened the account, your current balance and payment status, and you can dispute any of the information listed there.

For disputes over your credit accounts or information found in public records, TransUnion requires you to provide a reason as to why you are disputing the information.

The credit agency suggests you include corroborating information, such as records from your lender. You can upload those to your dispute.

You can add a consumer statement to explain any negative items that appear on your credit report.

If you don’t have easy access to a computer, you can also mail a dispute to:

TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19016-2000

Or, you can call 833-395-6941 between 8 a.m. and 11 p.m. ET, Monday through Friday.

See related: How to dispute an error in your Experian credit report

What to expect

TransUnion says most disputes are investigated within two weeks, but some take up to 30 days.

The credit reporting agency says it may do everything from updating your credit report based on the information you provided, to asking the lender to review the information to determine if the information on your credit report is correct.

If a creditor doesn’t respond within 30 days, TransUnion will delete the item from your credit report.

When the investigation is finished, TransUnion will send you an email and you can log in to its site to see the results.

If you don’t agree with the results, the company recommends you contact your lender directly with more information about your claim. If the lender agrees that your information is correct, it is required to contact TransUnion and tell it to update or delete the information that is in dispute.

Bottom line

It’s important to have errors removed from your credit report, which might help raise your credit score and entitle you to better interest rates.

Source: creditcards.com