Credit Cards Blog

Finance Blogs » Credit Cards Blog » Are consumer credit scores useless?

Are consumer credit scores useless?

By Steve Bucci ·
Monday, August 26, 2013
Posted: 6 am ET

Are credit score services a waste of money?

It's a question many have pondered for a few reasons: First, those services give you something called a "consumer" credit score that's usually different from the credit scores banks use when deciding whether to give you a loan. Second, creditors and insurers have been accused of using discrepancies between consumer and lender credit scores to jack up prices for financial products.

Despite those concerns, I'd argue consumer scores are still very much worth the expense.

To understand why, let's briefly discuss where those scores come from.

FICO, the developer of credit scores, has been using algorithms to predict default risks for decades. VantageScore, a credit score developed by the three major credit bureaus, recently joined the industry. Both of these scoring systems get updated occasionally. And every time, the scoring company tries to sell the update to banks. But lenders aren't required to buy the latest version. They may keep the old version if they're happy with how it works.

And this is why the banking industry is flush with different ways to measure your credit score.

Despite the variation, credit scores still provide a reliable snapshot of a person's financial life. Sure, they're not perfect. But they're better than nothing. And at a price of about $15, those scores are a relatively cheap way to assess your financial attractiveness -- warts and all.

I encourage my readers to keep track of their credit scores. They're used in the underwriting process, so if you know your score, it should help you shop for different kinds of loans.

And who knows? In the future, you may not need to wrestle over whether to buy your credit score since it'll be free. A bill currently moving through Congress would provide those scores for free by amending the Fair Credit Reporting Act.

It's unclear when -- or if -- this bill will pass, however, so please don't wait for Congress to act before getting your credit score.

Do you know your credit score, and do you think it's useful?


Steve Bucci is Bankrate's Debt Adviser and the author of the popular "For Dummies" series books: "Credit Management Kit for Dummies" and co-author of "Managing Your Money All-In-One for Dummies." To ask a question of the Debt Adviser, go to the "Ask the Experts" page and select "Debt" as the topic. Read more Debt Adviser columns and more stories about debt management.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.