Americans pretty much everywhere agree that this country’s credit-reporting system is essentially impenetrable. In a bid to help, almost two decades ago, Congress declared consumers have the right to receive one free copy of their credit reports each year (via AnnualCreditReport.com). But what we don’t have the right to see are the actual scores derived from those reports—it’s the equivalent of getting our homework passed back without a grade at the top.
Those reports are compiled by the three major credit bureaus—Experian, TransUnion, and Equifax. But credit scores are calculated by a different set of companies, using models that each claims makes theirs better. An entire industry has emerged to try to bridge this gap, full of companies promising not only to give consumers access to the scores lenders rely on, but also to kick in personalized financial advice that will help raise those scores.
However, a new review of these services by Consumer Reports suggests otherwise. Looking at five of the biggest apps that provide this service (Credit Karma, Experian Credit Report, Credit Sesame, myFICO, and TransUnion: Score & Report), the report argues that the scores they give you aren’t terribly useful—and, worse, that many of them routinely solicit customers to apply for additional credit or buy new financial services that, as Consumer Reports puts it, “are not necessarily in the users’ best interests.”
It notes that Credit Karma, Credit Sesame, Experian, and TransUnion only give customers access to a single credit score, and the odds are low that it’s the one lenders look at. This is partly because, as even Credit Karma acknowledged to Fast Company, “there are dozens, if not hundreds, of scoring models.” The one chosen by Credit Karma, Credit Sesame, and TransUnion is called VantageScore. Scores by its rival, FICO, have been around the longest and are considered the industry standard, which, according to Consumer Reports, means anybody else’s numbers are “unlikely to be the scores lenders use to make lending decisions.”
But this can’t illustrate the broader problem, which is how unbelievably patchwork the system is. Are you applying for a mortgage loan? Lenders will almost certainly look at your classic FICO score. (It’s the only model that gets the stamp of approval from the Federal Housing Finance Agency, or FHFA—for now.) Applying for a car loan? There are industry-specific scores for auto lenders, formulated to better predict your likelihood to repay a car loan on time. FICO makes one of these, but so does TransUnion, even though its app uses VantageScore. Actually, it offers car lenders not one but two scores: the TransUnion Auto Score and the TransUnion CreditVision Auto Score.
(Meanwhile, the Experian app uses FICO, but only one score—FICO 8, the most generic possible—significantly narrowing its use. Only the myFICO app gives users access to all of their FICO scores, but it charges them $24.99 a month.)
The irony is that while FICO scores appeal to banks and other lenders, VantageScore was created by the three credit bureaus after critics argued that FICO’s scoring model could do more to include marginalized communities and other “credit invisibles,” thereby addressing America’s racial wealth gap. In a statement to Fast Company, Credit Sesame said its use of VantageScore is about kickstarting a shift to a more inclusive financial services sector. VantageScore “offers credit scores to a broader range of consumers,” a spokesperson told us, including those who are “considered ‘unscoreable’ by other models—consumers that are new to credit, have thin credit files, or are credit invisible.”
TransUnion also quibbled with Consumer Reports’ suggestion that lenders rarely use VantageScore. Millions of loans are underwritten every year using it, a spokesperson said, adding: “Nine of the ten largest U.S. banks and a third of the largest credit unions all use VantageScore to make lending decisions for some of their products.” The company also threw out there that, since the start of the pandemic, it’s been making credit reports free every single week to anybody who wants one, going beyond the once-per-year law.
However, this kind of undercuts the explanation from these companies as for why it’s no big deal that fewer lenders use VantageScore. “What’s important is that credit scores are highly correlative,” a Credit Karma spokesperson told us. “That means if you’re rated a ‘good’ in one scoring model, you most likely have a ‘good’ credit rating in all other models.” Yet . . . FICO’s model was so flawed that VantageScore needed to be created?
Consumer Reports says the harder pill to swallow is that to get this maybe-not-useful score in the first place, you have to give these companies something very useful to them: your data. These apps all partner to varying degrees with outside companies, because their business models rely on it (especially Credit Karma’s, which is now run by Intuit and was built around making credit scores free).
Either way, the affiliates interested in this particular clientele tend to be lenders, insurance companies, and providers of financial services. Consumer Reports argues this means that people who are trying to be more fiscally prudent could end up bombarded with offers that don’t help—and potentially even hurt—their financial situation, and it’s technically coming from an app they downloaded to improve their credit scores.
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