Have you ever wondered why the credit score used by a lender is different from the one that you got from your free credit score provider? The truth is that it’s the most realistic outcome. That’s because lenders use one credit score, while free credit score providers issue one that’s totally different.
How can it be? Aren’t all credit scores the same? Hardly. Not only there are different credit scores, but there are different variations of the same credit score. The most popular credit score – and the one most commonly used by lenders – is your FICO score. But it’s extremely unlikely that the free credit scores you’ve been receiving are your actual FICO scores. That’s why it’s different from the one lenders use.
FICO vs. “FAKO” Scores
Free credit score providers attempt to issue scores that reasonably match FICO scores. They do this by attempting to match the scoring algorithm used to produce FICO scores. But since that algorithm is proprietary (secret), and since it is tweaked from time to time, the free credit score providers can never match it exactly. What you get instead is a score that represents the best effort to match your actual FICO score.
These scores are extremely common among free credit score issuers. For that reason, they’re often referred to as “FAKO” scores, which is something of a tongue-in-cheek adaptation of “FICO”. But the FAKO label is nonetheless true, since it actually represents an imitation FICO score.
Why do free credit scoring companies issue FAKO scores, and not your actual FICO scores?
“Free” is the Main Reason for the Difference
The reason for FAKO scores is found in the word “free”. Since they are proprietary, it costs money to obtain actual FICO scores. If a company were to provide you with your actual FICO scores, they would have to charge you for the service, as they would have to pay for the scores.
In order to offer free scores, they have their own algorithm to calculate a credit score based on information contained in your credit report. Though it might seem that such a practice should be illegal, it’s perfectly consistent with the fact that there are many different credit scores available. As such, free credit score providers can offer non-FICO scores as their own rendition of your credit score.
As a general rule you will not be eligible to get free FICO scores, unless a company that you regularly do business with provides them as part of the overall service package that they offer. Failing that, you’ll have to pay for a service that provides the actual scores.
Naturally, consumers are drawn toward anything that’s free. And since the credit score universe is more than a little bit confusing, it’s easy enough to not be aware of the differences between the various credit scores that are available.
Why FAKO Scores May Not Give the Full Picture of Your Credit
FAKO scores are almost never identical to FICO scores, and can often be significantly different. This can obviously happen because the FAKO score calculation is not the same as the method used in connection with FICO scores. But there are other reasons as well.
There are three major credit bureaus, Equifax, Experian and Transunion, and each compiles a credit report, and bases its FICO score calculation on that report. The information contained in each report may be different from the others. This happens because lenders may report to only one of the bureaus, creating an imbalance in information available to all three.
If your free credit score provider issues a FAKO score based on your Experian credit report, it won’t match a FICO score calculated on a credit report issued by Transunion or Equifax.
In addition, while your FAKO score may be based on your Experian credit report, the lender to whom you are applying for a loan, may base its lending decision on a credit score calculated from a credit report issued by Transunion or Equifax.
Maddening, huh? But it can become a significant problem if your actual FICO score is lower than your free FAKO score by a wide margin, say 50 to 100 points or more. And it can happen if there’s negative information on the credit report used to calculate the FICO score, that does not appear on the credit report used to calculate the FAKO score. After all, you’re basing future credit decisions on the higher FAKO score without realizing that it’s not the same one that the lender will use.
What can be worse however is if your FAKO score fails to reveal a major credit problem. Credit problems tend to get worse with age. For example, a missed payment could turn into a collection account, which could then turn into a judgement. And it all happens because your FAKO score indicated that all’s well with your credit.
Why FAKO Scores Aren’t Entirely a Waste of Time
Interestingly, FAKO scores do have some use. Though they aren’t entirely accurate, they can give you an indication of problems that exist in your credit report. And some free credit score providers also make available the credit report that they use to calculate your FAKO score.
If nothing else, the free service gives you the ability to monitor your credit report on a regular basis, and to do so free of charge.
But if there is a problem on your credit report, you’ll be much better served if you have a copy of all three credit reports from the major bureaus. In the meantime, think of the free credit score service as a warning system more than anything else. But as for actual lending purposes, FAKO scores have little purpose.
Getting Your Free Credit Reports
Under federal law you are entitled to receive a free copy of your credit report once each year from each of the three major credit bureaus – Experian, Transunion and Equifax. You can contact each bureau individually, or you can go to a single independent provider that can make all three available.
The Consumer Financial Protection Bureau (CFPB), an official website of the US Government, instructs consumers to access their free annual credit reports from AnnualCreditReport.com. It is listed on the CFPB site as the “ONLY authorized website for the free annual credit report that’s yours by law”.
You can order all three reports at once, or you can space them out ordering one every four months. In that way, you’ll be able to better keep current with what’s going on with your credit report.
Unfortunately, the reports will not include your actual FICO score. But they will provide your actual credit report, and you should check it thoroughly for accuracy. It will be the best source from which to begin an effort to dispute negative credit information that is reported in error.
Some banks and credit card lenders will allow you to access your actual credit reports as well. This can include large banks, like Citibank, or credit unions, like DCU Credit Union. They will generally provide this service free of charge. And if it is offered, you should take full advantage. It will be the best opportunity to know what’s really going on with your credit.
Have fun with the free FAKO scores, but just remember that they aren’t the scores a lender will use when you apply for credit.