Did you know is there such a thing as a fake credit score

DID YOU KNOW: Is There Such a Thing as a Fake Credit Score?

By: John Ulzheimer
Date: June 24, 2020

From time to time it’s not uncommon for people to use various pejorative terms to describe credit scores. Two such terms are “fake score” and “fako score,” which appear to be a play on the acronym used to describe credit scores developed by the company Fair Isaac, or “FICO.” The question is, however, is there really such a thing as a fake credit score?

While there is no standard in the credit scoring industry defining a “real” credit score versus a fake credit score, it appears the hypothetical standard is that anything that is not a credit score developed by Fair Isaac is somehow less valuable, artificial or fake. This is akin to suggesting a car built by Ford isn’t a real car because it wasn’t built by Chevrolet. Or, that a MacBook is a fake computing device because it wasn’t built by Dell. Of course, these comparisons are ridiculous because no one developer of anything stands alone, and certainly doesn’t own any market to the extent that a competing brand is properly referred to as being “fake.”

There are several credit score brands commercially available to and used by lenders to make lending decisions. Both FICO and VantageScore fit that description, but certainly, they aren’t the only two players that do so. There are also credit scores that are not commercially available to lenders but are available to consumers for the purposes of educating them about how credit scores work. All of these scores are scaled similarly, in that they range from roughly 300 to 850, with a higher score indicating lower credit risk.

In order for a credit score to be used by lenders in the United States, it must meet certain standards set forth in the Equal Credit Opportunity Act or “ECOA.” First, the scoring system must be empirically derived, which means it must be built using accepted statistical methods. Second, the scoring system is demonstrably sound, which means it has to work. And “work” in the world of credit scoring means that it must properly rank-order consumers based on the risk those consumers pose.

If a credit scoring system meets the ECOA requirements and it’s commercially available to (and used by) lenders, then by using any reasonable definition, it cannot be labeled a fake credit score. And, frankly, even if a credit score is only being offered for educational purposes, I still believe it has value. The credit industry, which includes an army of lenders, is better off if borrowers understand what credit scores are, how they work, what influences them and how they influence the terms offered by lenders. Educational credit scores do, in fact, provide this level of basic education to consumers and they’re immensely valuable.

Think back to a time, only 20 short years ago, when credit scores were seen only by lenders. At that time, consumers had little to no access to credit score education, or even to their own credit scores. It wasn’t until 2003 that the Fair Credit Reporting Act (FCRA) was amended by the Fair and Accurate Credit Transactions Act (FACTA), making it mandatory that mortgage applicants be given a Score Disclosure Notice, which disclosed the credit scores that were procured by their mortgage lender or broker. This was the first time that consumers ever had free access to their credit scores without having to ask for them.

It wasn’t until 2011 that consumers who were denied credit, based on their credit scores, were given access to their scores. Prior to 2011, when a consumer was denied based on credit information, they were sent a declination letter (formally referred to as a Notice of Adverse Action), but that letter only gave consumers information about where to get a copy of their credit report. The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the FCRA, so now those same Adverse Action Notices must include the actual credit score used by the lender as a basis for their decision.

Point being, the momentum for consumers gaining access to their credit scores is clearly building. There is no shortage of places where consumers can get their credit score information. There are websites and programs by credit card issuers or other lenders where their customers or registered users can access their credit scores as well as educational material about credit scoring. None of these resources nor credits scores are fake, and all of them are valuable.

Disclaimer: The views and opinions expressed in this article are those of the author John Ulzheimer and do not necessarily reflect the official policy or position of VantageScore Solutions, LLC.