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Credit Score Transparency

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Do you know what your credit score is? Sorry to trick you with a loaded question like that. Different credit bureaus come up with different algorithms leading to different numbers. The three major credit bureaus, Equifax, Experian, and TransUnion, could all give you different numbers. And to get those numbers you typically have to pay them.

If you are a bit frugal with your cash, there are cheaper options. For instance, thanks to some great legislation you can go to AnnualCreditReport.com and request to view your credit report from each of the three major credit unions. It's important to note that this is just a credit report - not a credit score. You get the information that they are pouring into Fair Isaac Company's Black Box (FICBB), but not the number the box spits out. Alternatively, you can get a free score of TransUnion's data from Credit Karma. The catch there is that Credit Karma's black box is not the same as FICBB. I've found it to be fairly accurate for me, but there is no guarantee that is the case for everyone. If you can afford to pay for your credit score, it makes sense to do a little research on the available options.

I suppose you are thinking, "Yeah, great... so what?" I'm uncomfortable not knowing exactly how that FICBB works. While there are numerous hints and tips on how to fix your credit the process for calculating the score isn't as transparent as it could be. We don't really know what's going on in the FICBB.

Now you may be thinking, "What do we gain from a transparent credit scoring system? I've done fairly well with the current system." Our credit scores impact our finances greatly. Our finances impact our quality of life. I think we have the opportunity to make our credit scoring system more accurate. That will only help people with money to lend figure out who is a good credit risk. We'll only find out if we open up the FICBB or develop another system that consumers can examine. Then, like open source software, we can look for holes in the credit scoring system and fix them. The overall product will be stronger because of it.

Lazy Man
Tip

Just because your credit score may not be transparent, doesn't mean it's not important. I wrote an article about how to a get free credit score... or you can get it directly here.

Maybe someday a company (perhaps Credit Karma) will bring this vision to reality. Perhaps a company already has and it's not on my radar. What do you think? Leave me a comment

Last updated on February 18, 2011.

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13 Responses to “Credit Score Transparency”

  1. Brent says:

    As a software engineer it bothers me to know end not knowing the internals of how my credit score is computed. For all I know, there might be code in there that says “If name == ‘Brent’ { score -= 20 }”. I think if people only knew exactly how their score is computed then they would take the correct measures to improve it and not just best guesses. For example, I would like to know that my score goes up a certain number of points every year because the age of my credit accounts increase.

    I’m all for transparency.

  2. Randy says:

    I’ve yet to figure out why I need to know my credit score. The score is a relatively new number and before it existed, we had to go to the bank to find out what a loan would cost us. What’s different now?

    The only debt I have is my house. I own roughly 50% of it and the bank the other 50%.

  3. Brent says:

    Randy, what do you think banks check when you apply for that loan? No bank will issue a loan without first checking your credit score. So knowing your score and how it is computed is just part of good money management. Just because it is relatively new doesn’t mean it isn’t important.

  4. Randy says:

    Brent, you miss my point. 10 years ago, banks didn’t use your credit score. Yes, most banks do today. But supposing you’re going to borrow money for a car, what will you do differently if you know your score? The score translates to an interest rate, that’s what you’re really interested in knowing.

    I’m a believer in checking your credit report and making sure it’s accurate. But if Bank1 gives me a rate that I think is too high, I’ll try Bank2. And I will certainly compare rates at different places.

  5. Kenneth says:

    @Randy

    To be fair, 10 years ago credit scores did exist but most consumers didn’t know they were used.

    But 25 years ago, loan decision where made by bank managers and loan officers based on a credit report. They used a mental score card and might based their decision on whether they had a good day or if they really liked you. I won’t take a stance on which approach is better.

  6. Brent says:

    It’s true that good credit habits and money management will translate into a good score. Unfortunately we live in a world where every point matters. For example, I’m shopping for a home loan right now. I’ve had several lenders say that they are not allowed to give loans or preferred rates unless your score is a certain level. They used to be able to look at other factors and determine your rate. However, now it doesn’t matter if you have a good job, long credit history, no debt, etc. It’s all about the number.

    So, suppose I need a score of 720 to qualify for a loan and I’m at 715. If we had a transparent credit scoring system then I would know what I could do to hit that number. Right now all we have are peoples’ best guesses which may help your score or it may hurt it. Basically I hate that your score is this great unknown when it doesn’t need to be.

  7. CeridianMN says:

    Transparency would be nice, but I fear there might be some unintended consequences and side effects. What if one of the factors for calculating your score is race? (Do you really think one of them is not?) What would the ACLU do with the knowledge that Hispanics are given a different rating than Native Americans? Transparencey would be nice for many people that are intelligent and want to know what they can do to improve, but a large number of people would not fit this bill. They might complain about being discrimanited against and call for government to step in and even the playing field. Suddenly everyone has a harder time getting loans because some groups that used to be considered higher risk are now off-limits for making decisions on.

  8. Lazy Man says:

    CeridianMN, you just gave us a specific reason FOR it to be transparent. Race should not be factor.

    In your scenario, everyone wouldn’t have a harder time getting loans. Banks would still want to loan out money. It would just be more fair for all.

  9. TJ says:

    What confuses me are all the different credit scores. For example, on Experian, my score today was 738 for the Experian Plus Score, and that put me in the “excellent” category. Then, I bought my VantageScore from Experian…. same exact accounts,same exact day….I rated a D, a mere 682 on a scale of 501-990. My credit is very good…no negs, no lates, three paid auto loans all good, good mix of different types of credit, only carry about a 35% balance on two of my seven bank cards. So why am I rating such a low number with VantageScore yet not with the Plus Score? This makes no sense and makes the whole score thing seem so arbitrary. Why do some people have such high VantageScores, when mine is so low without any reason for it to be. I am curious to pull my FICO score right now and see how it compares to these other two scores…. This makes me so angry – just the complete lack of transparency and never knowing exactly what is making a certain score so. Anyone have any knowledge or thoughts on this?

  10. RBK says:

    Just wanted to make a correction or two here. I used to work in the credit scoring industry.

    “Different credit bureaus come up with different algorithms leading to different numbers.”

    This is not entirely true. When most people refer to their “credit score” they are talking about the FICO score, made by Fair, Issac. This uses the same algorithm no matter which bureau gives you the score. The number can differ from bureau to bureau only because the data varies slightly, not the algorithm.

    The credit bureaus can and do use their own algorithms, like Experian’s PLUS score, but this is not the same as FICO and is not used widely like FICO is. In some ways the PLUS score is a better score, but it’s not as helpful to the consumer because few lenders use it to measure them.

    There is constant research in credit scoring to improve the process and make the results more accurate. The current FICO is not the original FICO score, and Experian has several different scores for different purposes and calculated different ways.

    More transparency is unlikely to happen because credit scoring is a business. If you knew exactly how your score was calculated, Fair, Isaac and other scorers would no longer be in business. Take heart, though– it is in their best interest to measure you accurately.

  11. I’m with Brent on this one. I’d like to know exactly how credit scores operate!

  12. Monica says:

    I do too think that there should be more transparency.
    For example, my credit score is very low. 670. However, I do everything right. I study, I check it, I follow every possible tip, do the right things. I have never ever been late. Never. Yet, I have never passed the 700 line. It is quite frustrating, as I make good money, have savings and want to buy a house now, yet banks won’t give me money due to my “bad” credit.
    As the main reason for my low score agencies indicate that my credit history is very short. Yes, it is. Not because I’m young, not because I lived somewhere in the woods, but because I moved to the United States only 6 years ago.
    Again, this is so retarded, as I have money for solid down payment, yet banks won’t lend, because my credit score is low, because I’ve been living in the country for only 6 years.

  13. Expert says:

    FICO score is based on woodoo unproven behavioral statistics. It has nothing to do with you or me. It might be usable as predictor for similar large groups of people – in epidemic statistical sense – but it does not say ANYTHING reliable about an individual.
    The FICO score would not pass a muster for expert testimony in the court of law and it should be forbidden in any free country.

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