Thursday, April 7, 2011

Credit Scores. Why so many?

FICO. VantageScore. PLUS. What else? Not to mention, different categories of FICO. Apparently, hmm..I can attest that FICO scores are indeed widely used to judge your financial capability. That 3 digit number is responsible for that low interest high reward credit card, that BMW 5 series or that 4 % luxury condo.

So where do you get your FICO score? I like to get mine from and I believe this is the only place you actually can get it from other than from your auto dealer or mortgage broker during the course of a transaction. Unfortunately, that FICO score you will get from will not always be the score your lender will see. Why not?

1) Well, first of all there are 3 main credit agencies. Equifax, Transunion and Experian. Your FICO score can vary sometimes widely among the 3.

2) There are different FICO scores used for different purposes. Auto lenders use a score model suited for guess what, auto loans. This score can vary from the FICO score you see. The auto lending scoring model prioritizes your auto loan history more so than other aspects of your credit report. Although not always, sometimes there can be significant difference between the FICO score you see and the one your auto dealer shows you. Usually, this difference will most likely due to you defaulting on previous auto loans, not having an auto loan, too many auto related inquiries among bunch of other weird activities or lack there of from your part.

3) The FICO score you viewed through is probably not labeling certain credit lines correctly which causes to dismiss certain credit lines as not being revolving credit. On the other hand, the source your lender is using is indeed treating that line as a revolving line. For example, If you have a checking overdraft account with a large balance, take this into account before you go crazy on your auto dealer. Overdraft lines are sometimes not reported properly.

Before you go shopping for that awesome Maserati or that kick-ass KIA, do yourself a favor and do the following:

1) Collect your FICO scores from all three agencies. You will have a hard time doing this as Experian apparently terminated its relationship with which prevents consumers from obtaining their FICO score using that source. If you don't have friends at banks and other places that deals with credit, you are most likely out of luck. In that case, collect 2, Transunion and Equifax.

2) Review the reports. Your order of the scores will include a copy of your credit report. If the scores of the 2 agencies are in agreement with each other, most likely your reports are similar. If they aren't, review both reports CAREFULLY and THROUGHLY. Try to identify the reason for the discrepancy. If it is negative and there is a reason to dispute it, do so prior to merrily visiting your auto dealer. In my experience, auto dealers use report from one particular agency by default.. However, I would suggest taking this opportunity to fix the discrepancy in your report first. Who knows, by the time you get to the auto dealer, your cleaner report may have been updated with the 'negative' information.

3) If all is nice and dandy, print the reports and take it with you to the auto dealer. If they tell/show you their version of the score and is lower, you may be able to get them to use all 3 and request them to use either an average score or the best score, YMMV. In most cases, they are not trying you deceive you with a cooked printed report. They are likely using the auto lending version of the score.

4) Negotiate. Walk out with your moving toy (usually a few days later).

Guess what, you have a new inquiry or maybe a few on your credit report. Having multiple inquiries within a span of 2 weeks will count as 1 provided they are for the same purpose (auto shopping, house shopping, etc.)

*FICO also has a newer version of their scores. FICO 08 I believe its called. I don't think all lenders are using it at the moment however.

*The VantageScore, PLUS AND FICO scores are scores that I am not fond of. But, FICO is better than the rest simply because most lenders use it.

*FICO only counts inquiries in the last 12 months, the others count 24 months.

The information above is from a long standing personal experience. But of course, YMMV.

A True 0% Interest Free Loan (kinda')

So while out and about on the Nethernet, I stumbled upon while attempting to unearth the possibility of paying mortgage and car payments with a reward credit card.

Although I have managed to rack up hefty reward points over the years, I actually never got around to using them myself. They were usually spent on gifts for friends and family. And in some cases, transferred to accounts of friends and colleagues. However, I vowed to change this course and actually use the to-be-racked-up points for mundane activities such as vacations for my dear self. I also vowed that I must use the damn points in this great year of 2011 (did you know adding your birth day and year equals 2011?).

My searches quite easily landed my mouse cursor on A company that allows you to indeed pay mortgage and car payments with a Mastercard, Visa or Discover. Of course, there is a catch:

They will charge you a fee+2.xx % for the privilege of earning rewards and potentially getting into debt. If you are however a disciplined card user, this might actually work for you in a number of ways:

1) Provided you have a good reward card, you can stack up points quite easily. If you are only minimally privileged to be using a 1x Thank You card, you will have earned 36,000 points in a year assuming your mortgage is $3000.00/month.

2) Interest free loan from no other than yourself. Take that $3000.00 which you would otherwise pay your mortgage with and put it into a bank account or rather, buy yourself a shiny new toy (the new macbook pros?).  Pay your mortgage with your credit card and earn some reward points. On the following month, use your $3000.00 mortgage that you nicely again saved and use it to pay your credit card. Charge the mortgage payment again on the credit card. Rinse and repeat. That stack of greens you safely stashed away in your credit union can stay there until your mortgage is finito. If you bought a Macbook Pro with it instead then God speed to you.

3) Float. Use the funds as a short term loan to yourself for up to 50 days!

There may be other avenues to utilize such options beyond I recall Bank Of America's Bill Pay having such facility although no reward points were given.

And don't forget,'s perhaps hefty fees. Also, use the strategy at your own risk. There may be other avenues to obtain an interest free loan. Legitimate options include borrowing money, savings, etc.