Credit scores are one of those quirky things that can easily blast consumers into a do-nothing fog.
Many people know they need to pay attention because higher scores mean lower rates on car loans, mortgages and the like. But what score do you need to see? Lenders use many different types of scores. Some experts say that at any time a consumer could have between 80 and 100 credit scores out there.
And the score you actually pay money to see? Consumers and lenders most often aren’t looking at the same three digits.
“I think that these scores can be helpful for consumers to understand how scoring works, but it’s important to note that the scores they get may not be exactly the same as the score that the particular lender will use if they apply for credit,” said Susan Grant, director of consumer protection for the Consumer Federation of America.
But Grant noted that she supports efforts in Washington to one day require that all consumers be able to receive free credit scores, too.
Yes, we’re dealing with one of the least-friendly consumer financial products.
Some solid options do exist for obtaining a free credit score.
John Ulzheimer, president of Consumer Education at SmartCredit.com, said some useful “truly free” credit scores are being given to consumers by websites like CreditSesame.com, Credit.com and CreditKarma.com.
“They’re really free, meaning you don’t have to give a credit card or other method of payment in order to get your free score,” Ulzheimer said.
Ulzheimer said some free credit scores are scores that lenders actually use. And even if it’s not the same score your lender would use, it’s likely to be close enough to reality.
Some free score options are scaled like FICO’s 300 to 850 scale or could be close to that range, making it easier to understand.
The Consumer Financial Protection Bureau found in a study issued last September that for a majority of consumers the scores produced by different scoring models provided similar information about relative creditworthiness. If one credit score model generated a bad score, another would have a bad score for the same consumer. But the consumer watchdog agency noted that a “substantial minority” of consumers ended up with different results with different scoring models.
Some online options exist for learning new tricks for boosting credit scores, too.
Quizzle, part of the Quicken Loans family, provides free credit reports and free credit scores every six months. Yes, these are educational scores, meaning it’s more of a guideline than a score used by lenders.
The Quizzle score is called a CE Analytics score. The scores are based on a Moody’s Rated credit score model that is used by some of the smaller credit bureaus. The free credit report comes directly from Experian and the score is calculated using the data off the Experian Credit Report.
But the idea is to track that score and see what actions can be taken to improve one’s credit, according to Todd Albery, CEO of Quizzle.
“In a perfect world, you would have just one score,” Albery said. “Even different lenders use different versions of FICO.”
Albery said it’s important for consumers to take time to understand what can be done to improve a score.
For many consumers, he said, it might be tempting to try to improve a credit score say three or four months before taking out a car loan or a mortgage. But many times, a loan is triggered by an unexpected event. Maybe someone needs to move and buy a new home because of a job change. Maybe a well-trusted, older car stops working and a new one is the best option.
So Albery maintains that consumers need to review their credit reports and scores even when they don’t think they’re going to borrow money.
A Federal Trade Commission study released in February found that 5 percent of consumers had errors on one of their three major credit reports that could lead to them actually paying more for auto loans and other products.
Consumers can improve their credit in many ways without even seeing a credit score.
Adam Levin, chairman and co-founder of Credit.com, said consumers need to understand how their use of credit impacts their credit report and credit score.
“You want this to be a résumé, not a rap sheet,” Levin said.
Consumers want to make sure to pay bills on time.
Watch how much you borrow on individual cards. It’s not a lot to borrow $300 on a credit card. But you don’t want to borrow $300 on a credit card that has a limit of $400 – especially if you don’t have other credit. This is often true even if you pay off the balance each month.
Do not be afraid to shop around for a loan within a reasonable time frame. And don’t be afraid to obtain your credit score, either. The Federal Deposit Insurance Corp. noted in an alert that your credit score is not lowered when you order your own credit report.
Do not automatically close accounts that haven’t been used in a while, particularly credit cards that you’ve had a long time and ones that do not have an annual fee. Many credit experts note that closing an account can lower your available credit and make the ratio of credit used to credit available worse. If you have $2,000 of credit card debt outstanding, it hurts your score more if your total available line of credit is $5,000 instead of $15,000.