Borrowers better learn facts of life about FICO; Is it a FICO or a Fake-O score?

Mortgage brokers and lenders say it happens all the time: A mortgage applicant says, "Oh, I've already checked my credit score online." Then the loan officer pulls the buyer's FICO score and finds it's 50 or 100 points lower than the generic credit score the applicant quoted.

"This is becoming a real problem — a lot of people simply don't know the difference between FICO scores and other scores," said Ginny Ferguson, former chairwoman of the National Association of Mortgage Brokers' credit-scoring committee and co-owner of Heritage Valley Mortgage of Pleasanton, Calif. "They think it's all the same." FICO scores, developed and named for Fair Isaac Corp., are the predominant credit measure used by the mortgage industry. The scores run from 300 to 850 and are used to predict a borrower's likelihood of future nonpayment: The higher the score, the better the risk.

Other commercial scoring models, which also may accurately predict risk of nonpayment and gauge a consumer's credit health and behavior, are widely available on the Internet.

But they are rarely used by mortgage lenders and therefore have limited relevance for a home-mortgage application.

Lenders use FICO scores to price mortgages. Lower scores can cost applicants hundreds of dollars a month in higher interest payments and thousands of dollars over the term of the loan.

When FICO scores are substantially lower than non-FICO scores, "the consumer assumes the broker did something to make their scores worse" — perhaps seeking to charge them higher rates or fees, Ferguson said.

"And of course, that is not the case," Ferguson said.

Independent credit-reporting agencies that supply FICO scores to mortgage lenders also are feeling the heat.

"Our members get blamed by their own customers, who are primarily brokers and lenders," said Terry Clemans, executive director of the National Credit Reporting Association, a trade group that represents hundreds of credit agencies providing consumer reports and scores to mortgage lenders.

We're getting a lot of angry conversations about 'Why is your score lower' than what the consumer got somewhere else?" Clemans said.

But credit-reporting agencies are simply middlemen. They buy reports and FICO scores from the three national credit bureaus — Equifax, Experian and TransUnion — and repackage them for mortgage lenders.

Ferguson, who lectures nationwide to loan officers on credit scoring, says she's seen only one instance when a mortgage applicant's FICO score was higher than an Internet pop-up site's score, "and that was just by two points."

Typically, she says, a FICO score comes in anywhere from 35 to 100 points below a generic score bought off an Internet site.

That's where the trouble starts, she says, because "we just don't use those other scores."

Fair Isaac itself has become concerned about marketplace confusion over its proprietary scores and a multitude of other scores.

Tom Quinn, vice president of global scoring for Fair Isaac, says the company's research has documented disparities of anywhere from five points to more than 200 between FICO scores and non-FICO scores on the same consumer.

The disparities exist because the statistical scoring models often assign different weights to the same information and generate what may be strikingly different numerical conclusions.

Some of the most active Internet-driven score purveyors are associated with national credit bureaus.

But they don't go out of the way to tell consumers that the credit score they are buying is an in-house generic score, not a FICO score, and therefore it will have little relevance in a home-mortgage transaction.

TrueCredit.com, for example, is owned by TransUnion. The Web site trumpets the importance of credit scores as financial-management tools but only reveals in tiny block print at the end of its "credit score sample report" page that "the credit score provided here is not a so-called FICO score."

Steven Katz, a spokesman for TransUnion, said his company's TrueCredit score "is really intended to help consumers understand the importance of taking control" of their own credit management.

It is, in other words, primarily an educational tool, not what will actually be used to qualify you or price your mortgage.

Nonetheless, prominent on the TrueCredit.com site is the statement that the TransUnion score is "how you may be viewed from a lender's perspective."

Except, of course, if that lender happens to be taking your mortgage application and pulling only your FICOs.