I was sent this column by Michelle Singletary of the Washington Post yesterday. She's usally right on the money (no pun intended) with her analysis of financial issues.
This column is about the difference between the Fair Isaac credit score--FICO--and the ones supplied by the credit bureaus, which we* call FAKO scores. Equifax's ScorePower, Experian's PLUS score, and Transunion's Credit score are just the credit bureau's guesses at what your FICO score should be.
The truth is, only Fair Isaac knows how FICO scores are calculated, and their formula is kept very secret. Other credit scores can sometimes come close to the mark, but they can be off by as much as 100 points either way.
This is important because lenders don't use FAKO scores; they almost always use FICO. So it does you no good to know a score that a) isn't correct, b) won't be considered by lenders.
I've always told people to check their own credit reports (and scores) before they apply for a loan. Now you know that not all scores are created equal. FAKO scores are worthless. If you want a true picture of your credit health, stick with FICO.
*FAKO or Fake-O has been around for years, but the term was popularized by Suze Orman fairly recently. Orman is, admittedly, on Fair Isaac's payroll. But whether she's a sold-out shill or not doesn't change the fact that most lenders use FICO scores, and that makes it the only score that's worth your money.
Suze Orman calls the FICO score, your most important Financial numbert. When I went through her Financial checkup program for the Young Fabulous and Broke (I'm all three) her system told me it's the first thing I need to work on. More than getting an emergency fund together or increasing income and decreasing spending.
I for one am not buying into the FICO game. I need to do a lot. I am right now concerning myself with stablizing my financial base. As I pay down my problem debts (through a combo of my own effort and concessions worked out through my DMP), and get some money saved I'm sure my FICO will go up. I am not going to obsess on it. I've seen other sites where people talk about and obess on every 5 pt change. The marketing of the FICO score helps keep us in a debt mentality. If we get away from the "Debt Mentality" our finances will improve even if our FICO does not.
Posted by: Craig | June 21, 2005 at 09:41 AM
Well I had the experience where my FAKO was 70 points different from my FICO
Posted by: Ralph | March 14, 2008 at 07:58 PM
What diference makes FICO in this market in which we have the worst economical era since the Great Depresion.
Posted by: Drug Test | March 09, 2009 at 08:02 AM
Even though the "Drug Test" comment is probably spam, this is an important question I want to answer.
We have what s/he calls the "worst economical era since the Great Depression" precisely because FICO scores weren't taken seriously. If home lenders had stuck with the FICO score as a measure of a borrower's likeliness to repay, the subprime market wouldn't have exploded like it did, leaving other parts of the market vulnerable for collapse. Rampant lending to people in spite of their low credit scores is part of the reason for the mess we're in.
Now that the house of cards has collapsed and banks and investors have been burned by poor underwriting standards, you can bet that from now on lenders will expect their borrowers to have even better credit than before. So this financial crisis has made your FICO score MORE important, not less.
Posted by: Jeff Michael | March 10, 2009 at 01:59 PM
Suze Orman has way too many teeth in her mouth...
Posted by: Heidi | April 06, 2009 at 08:37 PM