FICO vs. FAKO: What's Your Real Credit Score?

There are a lot of different credit scores out there, and this has naturally led some consumers to ask: Which scores should I pay attention to, and what’s my real credit score? People gravitate to the well-known FICO score, by all accounts the market leader in credit scores (meaning more banks use FICO scores than other scores). In fact, many refer to non-FICO scores as “FAKO” scores, but is that moniker accurate? Let’s take a step back and look at the credit score landscape.

First things first: The fact that consumers know anything at all about credit scores is impressive given that they were not intended for popular consumption when originally developed. They were really just meant to be a risk shorthand for lenders — a quick and clear way for a lender to determine whether to issue a loan to a consumer, and at what interest rate. Beyond that, credit scores are an important part of the securitization process. Banks bundle loans and sell them off to investors. Credit scores help determine the value of those investments. But there’s no one credit score used to make these determinations.

Each of us has dozens of credit scores used by financial institutions to judge our creditworthiness. FICO alone offers more than 50 different FICO scores to financial institutions and in some cases, directly to consumers. In addition to FICO, the company VantageScore offers credit scores, each of the three major credit bureaus – Experian, Equifax and TransUnion – offer their own credit scores, and a number of other companies have credit scores, too. There are also a number of “educational” credit scores that banks do not use, but instead are intended for regular people to use to get a better sense of their creditworthiness. Because these scores are not intended for use in lender decisions, they are often thought of as “FAKO” scores.

But what exactly is in a credit score, and what makes one score different from another? The vast majority of credit scores are configured using the information in your credit report. Specifically, the scores are based on payment history, debt usage, the age of your credit accounts, the different types of credit accounts on your credit report and credit inquiries. These scoring models are essentially formulas that weight this information in different proportions. One model, for example, may weigh credit age a little bit more than another model. Beyond that, different scoring models can use data from different credit bureaus. For example, one lender may use a credit scoring model with data from your Experian credit report, while another lender may use the same scoring model with data provided by TransUnion, and another from Equifax. So even if the models are exactly the same, the scores will be different if the credit reports don’t exactly match (which is not unusual).

Furthermore, different financial institutions use different scoring models for different reasons. One bank may use one credit score for their mortgage business and another for their auto loan business. A different bank could use entirely different scores.

So Which Credit Score Matters Right Now?

When people ask which credit score they should really be paying attention to, it’s important to consider the reason for the question. If you want to know your credit score so you can see the same score a lender will see when you apply for credit, that’s a very tall order. While FICO does control (by some estimates) 90% of the credit scoring market, it’s far from certain that the FICO score you get from one institution will be used by another. Even if you buy a FICO score directly from MyFico.com, it’s far from certain that the score you’ve purchased will be exactly the same as the one a prospective lender is pulling. In that case, for all practical purposes, a “real” FICO score may be no better than an educational “FAKO” score.

On the other hand, if you want access to a particular score that you know has at some point been used by a lender (even if it’s not your lender) specifically because it has been market-tested, then the FICO vs. FAKO dichotomy makes more sense. It’s important to remember, however, that in this case the distinction is more about peace of mind than any practical advantage. In this scenario, “real” credit scores cannot simply be limited to FICO scores. While VantageScore controls 5-10% of the credit scoring market, these scores are used by some lenders, and therefore, by this formulation, are just as useful as a FICO score.

These questions are naturally bubbling up these days because so many people are getting credit scores from so many sources. People see credit scores when they are buying a house. At the urging of the Consumer Financial Protection Bureau, more banks are providing people with access to credit scores as a part of their credit card account. Some student lenders are now providing access to credit scores. And, of course, there are plenty of free and paid websites that provide people with credit scores. Credit.com, for example, provides consumers access to two free scores — a VantageScore 3.0 and an Experian National Equivalency Score — along with an explanation of how your credit history is impacting the scores.

The problem is that often when people get their credit scores — particularly when they are getting them from banks — they don’t know which scoring model and bureau data are being used to generate the score. Further, some people don’t realize they have more than one score, and just assume that the score they are seeing is THE score. That can be particularly confusing if you’re getting multiple scores each month from different providers. People often assume that one or more of the scores is wrong.

The reality is that for the foreseeable future, for many Americans, confusion is effectively built into the system. However, the good news is that people in general are becoming more aware that credit scores exist and why they are important, and over time many more people will begin to understand the nuances of the credit scoring landscape and how to use it as a tool for their financial future.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.