Can You Believe That Free Credit Score?

As reported by the Washington Post, the only credit score that matters is the one that lenders use to evaluate customers. And, importantly, that score might not match the “random” scores customers received from their credit card companies or free websites, such as Experian, Equifax, and TranUnion. Although those scores may be interesting, they ultimately have little bearing on the interest rate a customer is quoted, or when a customer’s application will be approved. This is because lenders use different models to calculate a customer’s credit score than Experian or credit card companies. And, perhaps not surprisingly, lenders’ models tend to calculate lower credit scores for customers than customers found online.

In short, don’t rely on the free credit scores you receive, or even those you pay for, to assess your ability to pay for the mortgage or car loan you are considering. Instead, build in a cushion. What lenders use may vary markedly from the credit score you used to benchmark loan payments, resulting in monthly payments $100 or more higher than anticipated. But, importantly, if the credit score your lender uses seems unduly low as compared to the score given to you by your credit card company, inquiry with your lender about it by asking what model is being used to generate your score.

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