Multiple FICO Scores – Who Knew???

Multiple FICO Scores – Who Knew???

Hey Millennials, did you know that you can have more than one FICO credit score? Neither did I until my son recently applied to refinance his school loan, with me as his co-signer.

The lending agency told us that we had excellent FICO scores. For fixed rate loans, our lender used a 3 tier interest rate schedule Tier 1 – 4.95%; Tier 2- 5.75%; and Tier 3 – 6.89%. The final decision was based on your FICO score and other income/asset/liabilities documentation.

We received a refinanced loan offer with a fixed Tier 2 – 5.75% interest rate instead of the Tier 1 interest rate of 4.95%.

Since we both had excellent FICO scores, I decided to find out why we had not received the Tier 1 fixed interest rate of 4.95%. And to my surprise, I learned that lenders use multiple FICO scores, contingent on the type of loan requested.

Evidently, there are systemic iterations of FICO scores, depending on the type of loan requested, the credit agency (Experian, Transunion, or Equifax) supplying your credit information, the specific industry involved (car, mortgage, or credit card) and the FICO upgrade system used by the lender.

For example, if you are applying for a mortgage, then the lender can receive up to 3 different FICO scores, from different credit agencies, based on a different FICO score system (FICO2, FICO4, or FICO5). FICO Score9 is the latest iteration, although FICO8 is the most widely used by lenders today.

Interestingly enough, lenders only started using the FICO system in 1989. Our lender has been a steadfast user of  the Experian FICO2 score system for 15 years and used it to determine our credit worthiness.

As a result, our “excellent” Experian FICO2 score compared to our “excellent” Experian FICO8 score varied by 20 points. However, our lender used the Experian FICO2 scoring system to offer us a 5.75% interest rate refinance loan which, in effect, knocked us out of the running for a Tier 1 interest rate of 4.95%.

The irony here is that, under the Experian FICO2 scoring system, the lender’s cut off point for the Tier 1 interest rate was 770. According to Experian, our FICO8 score was 772. So, in theory, we “qualified” for a 4.95% interest rate; however, the Experian FICO8 scoring system is not used by our particular lender.

And given the fluctuating nature of the FICO score itself, there was no guarantee that if we had reapplied, we would receive the Tier 1 qualifying cut off score under the FICO2 score system.

Think of it this way, our lender is a Windows 95 system user and the rest of the world uses Windows 10. Although Windows 95 still functions, many of the successive upgrades have bells and whistles not necessarily compatible with Windows 95.

The moral of story is that credit rules the world. And what you think is a single source system is, in fact, a multiple octopus of sorts, governing your entire credit life.

FICO Score has become the dominant source for determining individual credit worthiness. Don’t dismiss it as nonsense, or you don’t care, or it really doesn’t matter because it actually does.

At some point in your life, most of you will be buying a house, car, vacation home, start-up business, or any other life decisions requiring resources not readily available in your bank account.

Your credit worthiness will be the determining linchpin in achieving success.

So know your credit value, monitor it, and improve it whenever opportunity allows.

Need more information? Check out the Consumer Financial Protection Bureau.

#Millennials #FICO #creditscore #loans #refinance