When reviewing their credit reports, one in five consumers are likely to receive a different credit score from what a creditor will use to price a loan, according to the Consumer Financial Protection Bureau. The discrepancy has the agency concerned.
Lenders use credit scores to help determine the interest rate they’ll charge customers—with higher credit scores often receiving 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 in applying for loans that they’re ineligible for.
Even the slightest variation in credit scores can make a big difference and has 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 having different credit scoring models for lenders and consumers that can vary. VantageScore also has different types of credit scores, CFPB says.
CFPB is evaluating the accuracy that credit reporting firms provide to consumers. It encourages consumers that when they review their credit reports to focus not on credit scores but to check the accuracy of the payment history on the reports because the firms use that to calculate scores. Consumers should take steps to correct any errors they find on the payment history of their reports because it can help improve their scores, CFPB notes.
source: Wall Street Journal