Lenders use credit scores to help determine the interest rate they’ll charge customers – higher credit scores often receive the best rates.
“Many consumers incorrectly believe that the scores they purchase are the same ones used by lenders,” according to a CFPB report. As such, a “substantial minority” of consumers are at risk of overpaying for credit or applying for loans they have little chance of receiving.
Even the slightest variation in credit scores can make a big difference, and the discrepancies have the potential to hamper a person’s chances for qualifying for certain kinds of home loans, according to the CFPB.
The CFPB sites FICO scores, which are widely used by lenders, as an example. FICO has different credit scoring models for lenders, and it can be different than what consumers see. VantageScore also has different types of credit scores, CFPB says.
CFPB is evaluating the accuracy of credit reporting firms’ service to consumers. It encourages consumers not to focus on a score’s number when they review credit reports, but to check the accuracy of the payment history firms use to calculate scores. Consumers correct errors on the payment histories within reports because it can help improve their scores.
Source: “Regulator Sees Flaws in Credit-Score Information,” The Wall Street Journal (Sept. 25, 2012)
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