Tuesday, December 30, 2008

Credit industry uses several different scores and formulas to rate consumers


The credit reporting industry offers up to six kinds of credit scores. They are all developed by Fair Isaac Corporation (FICO) but they differ. Equifax uses BEACON, TransUnion uses Rico Risk and Experian (formerly TRW and Chilton) uses FICO II. (I remember the “risk predictor” project when working for Chilton in Dallas back in 1987.) Fair Isaac has three other scores used by insurance companies (especially auto insurance) and possibly other businesses like employers. What would worry me would be an effort to score something like “online reputation” but I haven’t heard of this happening yet. I’ll try to find out what goes in these other three scores and report later. When I worked for Chilton, I used to hear about “investigative consumer reports” (background investigations into “mode of living”) but it seemed that these were rarely done in actual practice.

One important myth this that a credit score is highest if all bills are always paid in full. A small balance may actually show the ability to pay off bills over time and use credit and could improve some scores.

When you have a dispute with a creditor it may help to pay the bill on time and then go to small claims court.

All of this material comes from Lita Epstein, “Eight Myths About Your Credit Score” on AOL today (Dec. 29). The Walletpop link is here.

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