FICO Vs. FAKO – The Truth About Credit Scoring Systems

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The FICO score was created by Fair Isaacs Corporation and, according to their website launched the first publicly available credit scoring system called, obviously, FICO. Shortly thereafter, Fair Isaacs developed a similar score for Equifax and Equifax named it their Beacon score. Fair Isaacs remains in the credit scoring industry today and has become a public company trading under the symbol FICO.

The first thing to note is that the three major credit bureaus don’t use the FICO score. They each have their own proprietary scoring system – which is similar to the FICO score – but each one uses their own algorithm and range. Experian has many scoring systems but the one they currently sell to consumers through resellers is the ScoreX Plus system. TransUnion also has many scoring systems and their consumer scoring system is called TransRisk. Equifax is similar and their consumer-oriented scoring system is now called the Equifax Credit Score although their Beacon score is still commonly used by auto dealers.

And to make things confusing

Each of these scoring systems has gone through many changes and versions over the years. For example, the same data run through last year’s TransRisk score may not give the same result as this year’s TransRisk score. So, your score could change (slightly) just because the algorithm got updated, but your data remained the same.

And even more confusing

As a result of FACTA, the three credit bureaus got together and created the VantageScore credit score, which is also similar to the FICO score but was developed independently from Fair Isaacs, the creator of the FICO score. Equifax, does, however, have an agreement with Fair Isaacs to sell the FICO score but they make it clear on their website that the two are not the same.

And then there are many third-party scores such as CreditExpert’s score and CE Analytic’s CE score.

Fair Isaacs also develops proprietary scores for other companies such as lending institutions and they update their consumer score on a periodic basis. In fact, there are many versions of the FICO score used by various organizations that are tailored to their purposes.

FAKO Scores

The scoring systems created and sold by the credit bureaus and third parties have been unfairly dubbed “FAKO scores” implying that the only real score is the FICO score. That is far from the truth. These other scores are every bit as good as the FICO score when used for the same purpose, that is, consumer credit scores. You can’t really compare the special scoring systems built for specific purposes or clients by Fair Isaacs or the credit bureaus.

Why is the score I pulled different from the score my lender pulled?

Consumers need to understand that the actual number derived from each system isn’t as important as where it falls within the range of the system being used. That is, an excellent FICO score will (usually) also be in the excellent range for the VantageScore as well as the TransRisk score – even though the numbers generated are different. Said another way, consumers should compare the range they fall in when comparing scores and not the actual number.