FICO v. FAKO: Limitations of Free Credit Scores

First, there’s something you should know about the scores you get from free credit scoring services: They usually are not the same FICO scores lenders pull. The free scores are sometimes called “equivalency scores” or “educational scores” (and, derisively, “FAKO” scores). In this article, we’ll examine the reasons for the differences between the free scores you can get from websites like Credit Karma, Quizzle, Credit Sesame, Credit.com, and several credit card companies and the credit scores that lenders use. 

First, let’s clear up a misconception. The free credit scores are, in fact, real. But for several reasons, they may only give you a general idea of where you stand with a particular creditor. 

Different lenders pull different credit scores, and sometimes these scores are tailored specifically to the type of loan you’re applying for. For example, TransUnion's Account Management Model is designed to help institutions evaluate their existing accounts, identify their most profitable account holders and discern which account holders are most likely to become delinquent. And the TransUnion New Account Score, available free from Credit Karma, helps financial institutions identify the risk posed by prospective customers. TransUnion even has credit scoring models for specific types of lenders and creditors, like auto lenders and utility companies. Credit Karma also shows your credit score from Equifax for free.

Experian has different scoring models as well. The Experian National Equivalency Score, available to customers of the free credit score website Credit Sesame, is a score that financial institutions use to screen their offer solicitation lists, evaluate loan and credit applications and identify opportunities to sell more financial products to existing customers. This score can range from a low of 360 to a high of 840, while FICO scores range from 300 to 850. Equifax offers customized credit scoring models as well. The only way to find out the exact score a particular lender sees for you is to actually apply for that loan.

Another limitation of getting your credit score from only one source is that your score with each of the three credit scoring bureaus is usually different. That's due, in part, to the fact that lenders can choose whether to report to one, two or all three of the major credit bureaus, or they can choose not to report at all. In addition, each bureau weighs the data in your credit report somewhat differently when calculating your credit score. Further, a lender might pull your scores from all three credit bureaus, or it might just pull one. When you only know your score with one bureau, you aren't seeing the whole picture.

The VantageScore is a newer scoring model created by a collaboration among the three major credit bureaus. They wanted to create a score that is more consistent from one bureau to the next and more accurate compared with traditional FICO scores. While the VantageScore is not quite as widely used as the traditional FICO score, it has caught on among free credit score providers because of the ways in which it makes up for the shortcomings in the traditional models.

The VantageScore model most widely used now, VantageScore 3.0, scores consumers using a range from 300 to 850, just like a FICO score. VantageScore assigns different weights to the five factors that determine your credit score, as compared with traditional FICO scores. VantageScore also is more forgiving to individuals with shorter credit histories. Because of that, it can create a credit score for people who wouldn't qualify for a FICO score. In addition, while FICO treats all late payments the same, VantageScore judges them differently (late mortgage payments are worse for a credit score than a different type of late payment, for example). VantageScore also is more forgiving of hard inquiries than FICO, though FICO is more forgiving of low-balance collections.

There is a VantageScore 4.0 that was introduced in fall 2017 that has yet to be adopted widely and is not yet offered by free credit score companies. It uses the familiar 300-850 scoring scale and attempts to widen credit scoring by ignoring tax liens or judgments and medical debt collection accounts. For now, VantageScore 3.0 is the standard. If you get a free credit score from any of the following providers (not a complete list) it's likely to be via VantageScore 3.0 for some time to come:

• Credit.com
• CreditKarma
• Credit Sesame
• CreditWise
• Lending Tree
• myBankrate
• Mint
• WisePiggy
• CreditCards.com
• NerdWallet
• Quizzle
• WalletHub

Different scoring methods assign different weights to the factors that determine your credit score: 

• Payment history: 40%
• Credit age and type: 21%
• Credit utilization: 20%
• Credit balances: 11%
• Recent credit applications: 5%
• Available credit: 3%

• Payment history: 35%
• Amounts owed: 30%
• Length of credit history: 15%
• New credit: 10%
• Types of credit in use: 10%

Just as each of the three major credit bureaus issues its own FICO score based on the consumer’s information with that bureau, each of the three major credit bureaus issues its own VantageScore based on the consumer’s information with that bureau. A VantageScore from TransUnion will be the same as a VantageScore from Equifax if both TransUnion and Equifax contain identical information on a consumer. Since there are usually differences in the information reported to each bureau, consumers can still have different VantageScores, just as they can have different FICO scores.

Credit card issuers that offer free FICO credit scores (not a complete list) include: 

• Ally Bank (auto loan customers)
• Discover
• Bank of America
• First National Bank
• Barclays
• Citibank
• Chase
• Synchrony Financial
• Commerce Bank
• Wells Fargo

With any free credit score, it’s important to understand the limitations of what you’re getting – that the score you see might not be the same one a lender or creditor will use when deciding whether to take you on as a customer. The best type of free credit score to get is an actual FICO score from Experian, Equifax or TransUnion because these are the scores the vast majority of lenders use. Still, you won’t know exactly what score a particular lender uses unless you apply for a specific loan.