Equifax and TransUnion Fibbed About Your Credit Scores—Here’s What That Means for You
If you’ve ordered credit scores—or signed up for a “free” credit monitoring trial—from Equifax or TransUnion, make sure you know exactly what those numbers mean.
A recent investigation by the Consumer Financial Protection Bureau found both of these major credit reporting agencies were marketing credit scores sold to consumers as “the same scores lenders typically use to make credit decisions.” In fact, the credit reports and scores you see, and the ones your lender sees, are not the same.
Both companies’ marketing also claimed credit scores and related products like credit monitoring tools were either free or $1. According to the CFPB (and my own painful lesson in why you should always read the fine print), that is also misleading. These products are generally part of a free trial that automatically renews after seven to 30 days. If you don’t cancel during the trial period, you’re put on a “negative option” feature, a fancy way of saying you’ll pay $16 or more every month until you figure out the not-at-all obvious protocol for canceling the service for good.
The CFPB said TransUnion will pay $13.9 million in restitution to consumers along with a $3 million civil fine. Equifax must fork over $3.8 million to consumers and pay a $2.5 million fine. As part of the CFPB ruling, both companies were told to inform consumers about the differences in the scoring models, and clearly explain billing policies from the start. Neither reporting agency admitted or denied any wrongdoing.
So, what’s the difference?
Most consumer-facing credit reports and scores aren’t actually the ones lenders use to approve loans or decide interest rates. Instead, what you get from all three major credit bureaus is considered an “educational score.” Lenders get a version of your credit profile tailored to the financing you’re trying to get.
“There are credit reports for mortgages. Credit reports for auto loans. You don’t just have one credit score, you have a bunch depending on the purpose of the inquiry,” says Casey Fleming, mortgage advisor and author of The Loan Guide: How to Get the Best Possible Mortgage. “The whole point of the scoring model is to measure how likely it is you’re going to default. There are people who show patterns where they’re more likely to default on a mortgage, for example, so the report is tailored to that.”
And all those customized reports don’t just add up to a few different credit scores, you could have dozens.
To make things even more confusing, there are also different generations of credit scores released every few years (FICO 8.0 launched in 2009 and FICO 9.0 came out in 2014). So, some lenders might be looking at FICO 8.0, while another has adopted FICO 9.0. And much like any updated product, FICO scores are tweaked slightly every time. FICO 8.0 penalized single late payments less than previous versions, but penalized higher credit card balances more. FICO 9.0 doesn’t take paid collections into account, according to Bankrate.
On the consumer side, other credit scoring models, like VantageScore (developed in partnership by Equifax, TransUnion, and Experian), add even more complexity into the mix. As a consumer, it can be difficult to tell whether you’re seeing a Vantage or a FICO score unless you’re familiar with the differences in both products. Vantage and FICO scores are on the same 300 to 850 model, looking almost identical at first blush. The main differences come to down to how the scores are calculated, VantageScore looks back 24 months for data (compared to FICO’s six months). Vantage can track payments to rent and utility companies, weighs late payments on mortgages more heavily, and only allows 14-days for rate shopping on loans before another credit inquiry hit kicks in.
When you order your credit report either directly from a credit reporting agency or through AnnualCreditReport.com, you’ll likely wash out into a sea of data. Page after page of monthly payment information, credit balances, reporting start and stop times, even highly detailed contact information for every single lender. My fairly sparse report comes to 22 pages of microscopic text.
But at least your lender is also digging through the muck, right?
“The free credit report they provide is very difficult to read, and it is silly because the reports we get are far easier to read and are far more clear in terms of what they contain,” says Fleming.
To make matters worse, even if you know the difference, you’re likely never going to see the exact same report or scores your lender sees. “The credit report agencies see the report as being their property. When we sign up to run credit reports, we agree we cannot show the report to the consumer,” says Fleming.
If you are denied a loan product or think you received high rates unfairly, you must contact the credit reporting companies directly, who will then send you a consumer-facing copy of your credit report.
What does this mean for you?
If all this is starting to induce anxiety, don’t totally freak out yet.
The differences between lender scores and reports versus the ones consumers order are mostly in the way the information is presented.
“It isn’t going to be that much different. Much of the data that drives the score—regardless of the purpose—is the same,” says Fleming of lender credit reports. “If the information is on our report, it will be on the report you get for free. Just the format is going to be different.”
Still, the credit score a specific lender sees will likely be different than the one you ordered, and that might present a bigger challenge.
“People come into my office all the time and say ‘Hey, I’ve been on CreditKarma and I know I have an 800 credit score,’ and I have to say to them ‘OK, but our scores might be different.’ We’re you’re seeing an 800, I’m seeing a 760, for example,” Fleming says.
That variation largely comes down to what type of financing the consumer is seeking.
“So, for instance let’s just say you’re going for a car loan. You might be more likely to default on a car loan if you already have two car loans and you’re getting a third one. That’s a risk factor. In that particular case, there might be a 20- or 30-point spread because of that risk factor,” Fleming says.
In the end, Fleming says it’s rare that the difference between scores lenders see and those consumers order hurt loan approval or financing terms. If the score you obtain indicates you have good or above average credit, that’s likely the conclusion a lender draws as well.
In fact, reviewing an educational report at least once a year is still a solid way to stay on top of your financial health. And now that you know lenders receive customized reports and scores based on what you’re applying for, make sure you scrutinize your report for those specific factors at least six months before seeking financing.
“If there is any message I’d like to get out there at all, it is this: Credit bruises are not the end of your life,” says Fleming. “There are ways to improve your credit over the long run and the short run. It is good to have more control over your credit scores, that’s what the CFPB did. They made rules so you can see all the data that went into the scoring and work on it.”