I had a friend ask me yesterday why Credit Karma’s scores are not real credit score. That is a question I have answered time and again. The quick answer is credit scoring is an algorithm or a software program. Lenders don’t use every credit scoring algorithm that man can think up. Most(all most all)lenders use specific algorithms produced by the Fair Isaac Corporation or FICO for short. That means they set the parameters or guidelines or rules whatever being the decider who decides means in computer speak. Here is the fun part. Most lenders only use a handful of scoring algorithms FICO produces. FICO has jumped both feet in the junk credit score selling business. The bottom line is this; people who are confused are easily misled.
It’s about the money. Let me change topic just a smidge then I will get back junk scores and why. Credit scoring is computer generated. Every fiscal step you make has a risk assessment value assigned to it. Real credit scores are for the creditor, not the consumer and junk credit scores are for paying for yachts, mansions, and trips around the world, but not yours. Real credit scores tell the creditor how likely they are to get their money back from you if they extend you credit. Every credit score from 300 to 850 has a default rate associated with it. That means people with higher credit scores are more likely to follow the borrowing and lending rules than people with lower credit scores. It is risk-based pricing. The ones who pay back their creditors have to cover the ones who don’t. There is an interest rate for every score. Those rates range from 0% to 1106% APR. Which rate would you rather have? You get to choose.
How does Credit Karma make money? Their service is free! Credit Karma and every other credit monitoring service out there harvest your information and sells it in a variety of ways. The bottom line is this; people who are confused are easily misled. It’s about the money. They keep you going back to their site searching for truth because your score rises and falls like a sleepy toddler. As long as you are on their site, they are making money on you in every way possible except actually charging you money.
Why would FICO tell you that their new FICO 8(the free score you get with some credit cards) score is the score used by most lenders when I can’t find one that says they use it? The bottom line is this; people who are confused are easily misled. It’s about the money. Like Credit Karma, FICO 8 is the convenient lie that you pay $29.95 per month for or get for free from your credit card company. FICO 8 does not weigh medical collections, credit utilization, authorized user credit card information the same way. I have had several clients that were 740 plus FICO 8 and a barely 600 Real mortgage score. The picture I attached is the opposite. FICO 8 said my client was a 626, but his real credit score was a 709.
Here is a funny but sad thing they do to you. Within minutes of you signing up for a FICO 8 monitoring service you will receive an email stating your information has been found on a black site; Experian says they actively monitor the dark web. This puts a fear in you to never be without $29.95 per month credit monitoring. Umm excuse me, but if it can be monitored, it is not the dark web. What they found in most cases is your name being used in a bogus email address. Hardly the dark web, it’s more like spam.
The convenient lie is easier to believe. Credit Karma, FICO 8, anything with law, sesame or lock in its name or your uncle Joe’s opinion of your credit after he has a couple of martinis don’t give the same weight to medical collections or credit utilization or or-or like the FICO score models real lenders use.
The following is hilarious and was taken from Credit Karma’s site – https://www.creditkarma.com/credit-scores
VantageScore boasts that its 3.0 model can score millions of more people than other models by incorporating up to 24 months of past credit activity – including utility and rent payments where available – which could open up more credit options to you. VantageScore has three scoring models, and FICO has many more, but they all generally consider similar factors to calculate your scores…
What it means is anyone can give you a score that doesn’t count, but if you want a score that your lender will use to determine your credit worthiness you will need to get yourself credit educated. What you don’t know is costing you a fortune. Let me help you.