Why is Credit Scoring so Confusing?!

[ridgebackpilot]

While I'm not a newcomer to credit scoring, I continue to find the various scoring models unecessarily confusing.

First, there are FICO scores, the "real" credit scores. myFICO gives us not only our FICO 8 scores but a host of other FICO scores for bankcards, auto loans, mortgages, etc. And now there's the FICO 9 scoring model that seems to be gaining traction with lenders.

Then we have Vantage scores that are available via Credit Karma, CapitalOne's CreditWise, and others. Lenders don't seem to use Vantage scores, so why does anyone bother to distribute them?

Finally, adding to the confusion, individual CRAs seem to have their own scores. Case in point: I recently subscribed to Equifax credit monitoring, which provides an Equifax score. But it's not the same as the EQ FICO score!?!

Here's a real-time example: My EQ FICO 8 score is: 725. But my score from Equifax's own site is 674. And CK says my EQ Vantage 3.0 score is: 787.

Now I know many of you will say, "Oh, just ignore all the non-FICO scores! They're worthless..." Well, okay so why do they exist then? And is it any wonder that most people throw up their hands in frustration and give up trying to understand how the system works? It's like comparing apples, oranges, bananas, and peaches!

(Not to even mention the most confusing aspect of all: How and when credit score changes actually take place, get reported, get alerted, etc...!) Aaaargh!

[tparks5961]

I guess the different scoring models exist because of one thing. Money.

For the longest time, the FICO score pretty much had a monopoly on scoring. With the creation of the vantage scoring model, it gave other companies i.e. credit karma and credit seasame a low cost alternative to the FICO score. Transunion, Experian and Equifax are making money from 3rd party suppliers using vantage scores.

I can tell you a while back that I gave up on my credit as well. It's why I sometimes say I wish I had found these forums a lot sooner, because now I know better. I think it's fair to say that we all have an advantage over people who don't study these forums.  It's not easy keeping up with everything sometimes, but I know that some day it'll all be worth it.

[dragontears]

+1 the reason is money
So called FAKO scores are distributed because it is cheaper than paying FICO for their algorithm

[Anonymous]

It will become less and less confusing for you over time as you continue to learn more regarding scoring.

As the poster replied above, VS 3.0 scores are there because they're a lost cost alternative to FICO scoring.  Those sites you mentioned like CK have no problem providing thoes VS 3.0 scores, but there's no way they'd be able to provide TU/EQ FICO scores weekly for no cost to the customer.  It is what it is.  We can use the common phrase that they're "for educational purposes only" I suppose, even though I sort of find it to be a bogus saying, since it's sort of irrelevant education.

As far as the EQ score you're getting from EQ, it must be based on a credit scoring model.  You need to look in the fine print near the score you're seeing, down at the bottom of the page, or in the FAQ to see what it is.  The CRAs don't each have their own scoring model, which may be the impression that you have based on your original post.

The industry enhanced models like bankcard/auto/mortgage flavors are simply better tuned to those products.  If you aren't applying for those products, the chances are that those FICO flavors aren't nearly as relevant to you as the more common FICO 8 or traction-gaining FICO 9.

[Anonymous]

People who come to the US from Communist countries are similarly bewildered by the thousands of makes and models of (say) cars (or breakfast cereal, or whatever).  "Why do all these things exist, then?" the visitor asks.  The reason he is baffled is because he's coming from a world where the State decides what needs to be made.  And indeed if there was a single group deciding what cars should be made, then there would likely not be a Ford Focus, a Honda Accord, and a Toyota Camry, which are similar cars competing for the same customers.  Instead, the Politburo would direct the auto industry to make one such car.

But in a free market, there are typically many companies producing similar but not identical products all with different names.  Indeed, the surprising thing given our capitalist economy is that we have such little diversity in the world of credit scoring, not that we have so much.

It is fortunate for our OP that there is such little diversity and that furthermore the relevant products (reports and scores) can be obtained to zero cost or perhaps a dollar.  He just needs to focus on his FICO 8 scores, unless he is about to buy a house. 

As far as our OP's last paragraph goes:

(Not to even mention the most confusing aspect of all: How and when credit score changes actually take place, get reported, get alerted, etc...!) Aaaargh!

That's easy to learn and there are lots of people here who will be happy to walk him through that.

[Anonymous]

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@Anonymous wrote:

It will become less and less confusing for you over time as you continue to learn more regarding scoring.

As the poster replied above, VS 3.0 scores are there because they're a lost cost alternative to FICO scoring.  Those sites you mentioned like CK have no problem providing thoes VS 3.0 scores, but there's no way they'd be able to provide TU/EQ FICO scores weekly for no cost to the customer.  It is what it is.  We can use the common phrase that they're "for educational purposes only" I suppose, even though I sort of find it to be a bogus saying, since it's sort of irrelevant education.

As far as the EQ score you're getting from EQ, it must be based on a credit scoring model.  You need to look in the fine print near the score you're seeing, down at the bottom of the page, or in the FAQ to see what it is.  The CRAs don't each have their own scoring model, which may be the impression that you have based on your original post.

The industry enhanced models like bankcard/auto/mortgage flavors are simply better tuned to those products.  If you aren't applying for those products, the chances are that those FICO flavors aren't nearly as relevant to you as the more common FICO 8 or traction-gaining FICO 9.

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EQ does in fact provide their own internal scoring model through their monitoring service, the only CRA to do so.

[ridgebackpilot]

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@Anonymous wrote:

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EQ does in fact provide their own internal scoring model through their monitoring service, the only CRA to do so.

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Thanks for your responses. I'm so pleased there are true experts here who can help us poor lost souls and credit novitiates understand the complexities of credit scoring...

As for Equifax, I thought I'd read that on their website. They have their own internal scoring model that doesn't correspond to either FICO or Vantage.

Diversity and choices are almost always good things. I've lived in Europe where there are fewer choices than we enjoy for most things. After all, who doesn't like choices in TV channels and electricity providers?! However, in this case I'm not convinced having a variety of choices and a diversity of confusing credit scoring models is a good thing at all. It only serves to promote confusion and uncertainty. Of course, YMMV depending on your experience with these things, provided you have the time and patience to study it all...

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[dragontears]

One thing to remember is that consumers are not the target "end user" for credit scores, lenders are. Credit scores exist to provide a numeric method for lenders to evaluate risk.

[iv]

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@Anonymous wrote:

We can use the common phrase that they're "for educational purposes only" I suppose, even though I sort of find it to be a bogus saying, since it's sort of irrelevant education.

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I've always considered "for educational purposes only" in the same way as "for entertainment purposes only" on on a psychic/tarot/etc booth: legally covering themselves when the scores/readings don't actually match reality.

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@Anonymous wrote:

The CRAs don't each have their own scoring model, which may be the impression that you have based on your original post. 

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Um. Well... they do. In addition to FICO and Vantage, each CRA does have its own scoring models, some generic, some industry-specific, some purely "educational".  For instance, there's the "Equifax Credit Score", the "Transunion/CreditVision New Account Score", and the "Experian National Equivalency Score".  The CRAs all have multiple "house models" for scoring... whether they get used all that much is the question. But they do exist.

Yes, that can make understanding the system more confusing, since a CRA or CMS that provides an "off-brand" score has very little reason to explain the differences to their average users.

[flan]

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@dragontears wrote:
One thing to remember is that consumers are not the target "end user" for credit scores, lenders are. Credit scores exist to provide a numeric method for lenders to evaluate risk.

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And sophsisticated lenders (which is all of them that lend more than trivial sums of money) have their own models for evaluating risk.  Credit score is just one input (and for some lenders, they use more than one type of score.  Remember, the disclosure requirement is if they use a credit score, they have to tell you one of them, not all of them.).  income, assets, and debt ratios are big factors, and they're not included in FICO scores at all.   A consumer with a single credit card, 10,000 limit and an 8000 balance, probably has scores in the 600s.   She is a poor risk if he makes $20K a year.  If she makes $100K a year, she's a better risk, even though the FICO score is the same.  If she's got a million bucks in a brokerage account, she's almost no risk at all.