What Credit Score is My Lender Using?

So you’ve worked really hard to make payments on time, reduce your debt, check your credit report and fix any errors.  You’ve done all the things you’re supposed to do to drive up your credit scores.  Now you’re ready to take your 760 credit score and march into your creditor or potential creditor and start demanding the best terms, right?  Not so fast.  Don’t be surprised if your creditor is looking at a different score than you are.  Here are a few reasons why.

It’s probably not a FICO Score.  Most “free” credit scores available today are estimations of a FICO score. What difference does it make? While these substitute scores are a good gauge of your credit health, they’re not what most lenders are using to make actual credit decisions.  For that, the overwhelming majority of creditors turn to FICO scores.  You can check two of your three FICO scores at myFICO.com, but they’re not free.

It’s probably an input to a different score.  Many larger financial institutions use customized application scoring models that, in addition to a FICO score, also weight other factors like household or individual income, whether you own or rent or whether you have a savings or checking  account.  Next time you fill out an application, pay attention to what they’re asking – it’s probably being evaluated by a scoring model and scoring models hate empty spaces!

They may not be using a credit bureau score at all.  If you’re calling your credit card company asking for a credit limit increase or a better interest rate they already have a wealth of more valuable data at their disposal – how you’re paying and using the card today, are you making minimum payments or paying it down, has that changed in the last 3-6 months, how much of the line do you revolve, when was the last time your line was increased…and much much more.  All of these factors typically go into what’s called a “behavior score” which has historically proven to be a better predictor of future credit risk than even credit bureau scores in the shorter term.

It’s almost certainly not the only factor in their decision. Aside from whatever score or model is being used by your lenders, today’s automated decisioning systems are able to incorporate multiple data points into a decision. Mortgage lenders may be looking at “loan to value” ratios or auto lenders might want to incorporate down payment or trade-in values.  These are important deal variables that can be affected by market conditions that aren’t so easy to model.

Staying on top of your credit scores, and even more importantly, what’s on your credit reports, is critically important to maintaining your credit health.  Even with the mitigating factors mentioned above, credit score and FICO scores specifically are a hugely important factor for lenders in most credit decisions.

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.  Follow him on Twitter here.


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