Personal Finance

Careful Buying Credit Scores — Scams Abound

| by PhilipTirone

Watch TV for a few minutes, surf the Internet, or turn on the radio, and you will hear at least one commercial promoting a website to buy credit scores. These commercials typically advertise a free credit report, luring you to their site where you learn that you must pay for your credit score.

These organizations fail to disclose a critical fact. Most of the time, the credit scores they are selling are worthless—complete and total pieces of junk that fail to give you an accurate representation of your true credit score.

Sure, their offers are alluring, especially in our economic climate. Now more than ever, your credit score is important. Banks have pulled the purse strings tight; unless your credit is squeaky clean, your loan application will probably be denied. And that might be the least of your concerns. If you are one of the millions of unemployed workers, you might not qualify for a job unless you have a strong credit score. More than 60 percent of employers run credit checks on candidates at least some of the time.

Reviewing your credit report, correcting errors, and learning how to build credit is wise. In fact, in 7 Steps to a 720 Credit Score (Philip Tirone, 2008), I explain that you should pull your credit report at least every six months.

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If you are given an opportunity to download a free credit report, there’s no harm in doing so. But be very careful about where you buy credit scores. With only rare exceptions, these credit scores are almost always useless, wasting your precious dollars on something that does not reflect your actual credit score.

The process works like this:

The credit-scoring agencies—Experian, Equifax, and TransUnion—use a lot of different formulae to generate credit scores. The formula they chose depends on who is asking for your credit score. A lender considering whether to give you a car loan is interested in different aspects of your history than your landlord, so the formula will be tailored accordingly. For instance, greater emphasis might be placed on your installment payment history for the auto lender; the landlord’s score might place greater emphasis on your mortgage history.

When you visit most online resources to buy credit scores, the formula that is almost always applied is called the consumer formula, and it produces something called the consumer score. The consumer formula is generic—it places equal emphasis on your mortgage history, installment payment history, and the like.

The problem with the consumer score is that no lender will ever see it. Not a single one. Never.

As a result, your consumer score is useless. And like I said, this is the score you will be given if you buy credit scores from most online sites, which are just out to make a buck.

Let’s talk numbers by looking at a real example of the difference between a consumer score and a score that is generated based on the FICO formula that 90 percent of lenders use.

One day, I bought both my consumer scores and my FICO scores. I went to AnnualCreditReports.com, where I downloaded a free credit report and purchased my three credit scores. Experian, TransUnion, and Equifax applied the consumer formula to these credit scores, so I received three consumer scores. All three reports showed a credit score above 720, the cutoff for receiving the best interest rates. In fact,  my lowest credit score was 759.

This seems great, right? I can just go apply for a loan and get the best interest rate, right?

This is what a lot of people would have done, but I knew better about where to buy credit scores. Through my mortgage company, I was able to purchase my Experian, TransUnion, and Equifax FICO scores.

This time, my highest credit score was 759. My lowest was 653—a whopping 67 points lower than needed to secure a loan at the best interest rate. A collection account had been added to my report (it was a mistake) and this one item was causing my score to drop significantly.

Imagine what would have happened if I had been preparing for a home loan and relied on AnnualCreditReport.com as an indicator of my credit score. I would have had two lousy options:

1) Accept less-than-favorable loan terms; or

2) Postpone purchasing my home while I learn how to build credit and clean up the mistake on my credit report.

This is the problem with most places you might go to buy credit scores. If you want an accurate reflection of the credit score lenders will see, you must buy credit scores from the right place. Go to www.720ficoscore.com to get your FICO score. This score truly is the only score that matters.