In credit, the right score can be elusive

The letter in the mailbox was most welcome. I was offered a chance to buy my credit score from consumer-credit bureau TransUnion for a mere $7.95.

I had never seen my credit score before. But anyone who reads the news knows that in today’s crazy credit climate, an individual’s credit score is more important than ever. A credit score affects your ability to get a mortgage, a car loan, credit cards and even what insurance rate you pay.

I jumped at the offer.

A week later, I opened the envelope and couldn’t believe my good fortune. My credit score was a whopping 926! My grade was an A. "Your credit ranks higher than 90 percent of the nation’s population," the report said.

A week later, when I applied for a credit card by phone, I bragged about my credit score to the person taking the application.

"That’s not what I have in front of me," she said.

"What do you mean?" I replied.

"Your score is a lot lower than that," she said. "I can’t tell you what it is, but it’s almost 200 points lower."

Dumbfounded, I decided to try another credit bureau. For $15, I bought my credit score from Experian.

The score came back: 741. "Your credit rating ranks higher than 59 percent of U.S. consumers."

What’s going on here?

Here’s what I learned: There are hundreds of ways to compute credit scores, depending on the lender and the circumstances.

The TransUnion score I bought was called VantageScore. Many lenders don’t use that.

TransUnion offered me another score for $29.95, which a representative said was closer to the score that lenders actually see. That score — called TransRisk — was 693. Even worse, my rating was listed as between good and fair. So what about that A rating?

The Experian score I bought was called Plus score.

I decided to buy the granddaddy of credit scores from Fair Isaac, a Minneapolis company that is the creator of the modern credit scoring system, also known as the FICO score. That cost another $14.95, and that score was 735.

926. 741. 693. 735.

More than a number

"Welcome to the wonderful and sometimes wacky world of credit scores sold to consumers," Craig Watts of Fair Isaac said. "There’s no better time to learn about this, considering what’s happening with the credit industry."

Turns out that the FICO score is used by many lenders, and even by other credit-reporting companies. But two years ago, three of the credit-reporting companies — TransUnion, Experian, Equifax — joined to create VantageScore to sell to consumers.

As TransUnion spokesman Steven Katz explained: "We really encourage people not to focus on the score number but the information that is provided with the score that shows where they stand."

What about the difference between my A rating and my good-to-fair one?

"There are nuances to each one of those models that have reasons for existing," he answered. "But as a consumer, you could drive yourself crazy focusing on the number."

Rod Griffin of Experian said: "I tell people, 'Don’t panic if you see two different numbers. They are from two different credit systems.’ But in both cases, your score is excellent. You’ll be able to get the loans and rates you want and the best terms."

I’m not so sure.

Why does it matter?

Take my 735 Fair Isaac score. I fall into the 700-759 range, which means that as of last week I could qualify, according to Fair Isaac, for a 30-year fixed mortgage loan of $200,000 with a 6.2 percent interest rate and a monthly payment of $1,226.

But if my score was 25 points higher, I’d move into the top range of 760-850. My interest rate would be 5.9 percent and my monthly payment would be $29 lower. Over 30 years, that’s a savings of more than $10,000.

A report released this month by the Consumer Federation of America and Washington Mutual Bank found that if all consumers raised their scores by 30 points, total annual savings would be an estimated $28 billion.

Travis Plunkett, legislative director for the consumer federation, told me that the VantageScore — the original one that misled me on my true credit rating — "will only confuse people."

"When you thought you were an A, you really weren’t," he said.

Not really 'free’

Fair Isaac has sued the three credit-reporting agencies behind VantageScore, saying it’s unfair and anticompetitive.

TransUnion is also on the losing end of what is considered to be the largest class-action lawsuit in history. About 160 million Americans are affected. Anyone who had a loan, credit card or credit account between 1987 and 2008 is entitled to free credit monitoring for six months or nine months, depending on which option you choose. There’s also a cash settlement option available.

But before you celebrate getting a free credit score, know that you would get VantageScore, the one that fooled me.

Consumer Reports found that dozens of Web sites offer credit scores and credit reports to consumers.

Most are sponsored by TransUnion or Experian, but a consumer cannot easily learn that because the sites go by different names.

Many sites have names with "free" in them, but they are actually designed to sell expensive credit-related services such as monthly credit monitoring.

"Most offers contain one or more free credit scores when a credit report or credit monitoring service is purchased," CR states. "Many offers were imprecise about the exact nature of the credit scores to be provided, that is, whether consumers would be receiving the well-established FICO score provided by Fair Isaac Corporation or any of a half dozen other scores associated with one of the three major credit reporting agencies [e.g. VantageScore].

"This information was often not available until after a consumer had made a purchase or signed up for a free trial of a service."

My suggestion is to buy your score at myfico.com and get your free credit report at annualcreditreport.com.

And FICO spokesman Watts suggested: When you want to borrow or apply for credit, find out what score that particular lender uses and then buy that score.