Various Credit Scoring Models

Beware....Not All Credit Scores Are The Same!

 

When did credit scores come into being?

Around 1990 or so, the very first credit scoring system, which was created by Fair Isaac Corporation, began increasing in popularity with lenders. During the mid-90's, Fannie Mae and Freddie Mac began using these FICO scores exclusively, which created the standard use of credit scoring today.

It's only been fairly recently, since about 2001, that credit scores have been made available to the general public. The credit bureau's capitalized on this, as they all began charging consumers for their FICO score. Due to the fact that they had to pay Fair Isaac Corporation royalties on every sale made, the bureau's themselves decided to create scoring systems of their own. Ultimately this gave them a bigger piece of the pie and a chance to create more services to become even more profitable.

Beware of ads for "free credit reports"!

This is the reason that you see ads and commercials everywhere these days promoting "free credit scores". These free scores are NOT FICO scores and the scores you receive may differ greatly from the actual FICO scores that are used for mortgage lending purposes.

There are many different scoring models being used today in many different industries. If you do not know exactly which scoring model you're getting a score from, then it really doesn't mean anything. Some scoring models have ranges up to 950, whereas FICO scoring model only goes to 850. If you choose to get your score from some unknown company, you might think you have a better credit score than you actually do.

These companies that are offering free credit scores usually make you sign up for some type of credit monitoring service that charges you monthly. Unless you've been a victim of identity theft, there really is no reason to need a credit monitoring service. You can check your credit report once a year at no cost to you, for all three bureaus thru http://www.annualcreditreport.com/.

You know the old adage....

"If something sounds too good to be true, it usually is."

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