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Credit score identity crisis

By Janna Herron ·
Friday, May 11, 2012
Posted: 5 pm ET

Last week, a FICO study found that the percentage of Americans with credit scores near perfect was at the highest level in three and a half years. That's something to cheer about, but the report also highlighted one of the mysterious factors in the already nebulous world of credit scoring.

The study was based on newer FICO 8 credit scores, and not on the FICO scores most widely used by lenders and available for consumers to see. (Let's give credit where it's due: The New York Times Bucks blog pointed this out.)

The wording in FICO's press release never mentioned the FICO 8 credit score. Though, to be fair, the controversial "8" appeared in a chart below the bar graph in the press release.

Turns out the FICO 8 credit score is a bit more forgiving of certain bad behaviors, such as a rare late payment, and can result in boosting a score by 20 points. The folks at FICO reassured the NYT Bucks writer that the trend of more consumers with scores above 800 would have remained the same even if the study looked at the older score.

At this point, you're probably wondering: How many FICO credit scores are there? When personal finance writers dole out credit advice, they usually reference "the FICO credit score." But there are more than one.

A company spokesman told the Bucks writer that the FICO scoring model has evolved five times since it first debuted in 1989. Lenders can choose whether to update their scoring models, so many could be using older versions.

Add to that the different FICO scores provided by the three credit reporting bureaus. The bureaus plug in information off of their own credit reports into a FICO model to spit out a credit score. The credit reports can vary among bureaus, because lenders aren't required to report your accounts to all three.

So that means, if there are five scoring models and three unique credit reports, that equals 15 different FICO credit scores. You have access to two of them: An Equifax one and a TransUnion one.

Should we care? I believe greater transparency when it comes to personal credit is important, so perhaps lenders should let you know which credit score was used. (The credit score disclosure rules that took effect last year require creditors to provide the score used to make an adverse lending decision.)

But should it change your behavior? Nope. Homing in on a credit score is like obsessing over a weight on a bathroom scale. What you should focus on is what made those three numbers: Your diet. In this case, your financial diet.

Are you paying your bills on time every month? Are you keeping balances consistently low? Do you take on credit only when you need it? Do you have a good mix of credit? Are you checking your credit reports every year to make sure they're accurate?

If yes, then your credit score -- whether it's a FICO 8 or a TransUnion FICO or an old FICO model -- will take care of itself.

How would you make credit scoring and reporting more accessible to consumers?

Follow me on Twitter: @JannaHerron

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