FICO or FAKO?

July 24, 2008
by Edward Jamison, Esq.

We’ve all seen them – the never-ending television ads and radio commercials with the catchy jingle for free credit reports and scores.

Nowadays a number of similar companies are offering free credit reports and scores. With all of these ads for freebies, it’s no wonder that so many consumers believe that all credit scores are created equally.

First, a little history on credit scores:

A company called the Fair Isaac Corporation created the first credit score. It was made available to lenders in the very late ‘80s and soon thereafter began to pick up momentum and popularity in the lending world. The FICO® score became the gold standard in the mortgage lending world when Fannie Mae and Freddie Mac endorsed its use for evaluating mortgage loan applications in the mid ‘90s.

For years the FICO score was a mystery to consumers and was only known by the lending industry. Credit scores have only recently been made available to the public in the last few years. In 2001, California passed a law that required credit scores to be made available to California residents. This pretty much opened the floodgates for the rest of us.

It also turned into a cash cow for the bureaus. However, for two of the three, instead of selling the actual FICO score, where they had to pay royalties to the Fair Isaac Corporation – they created their own scores to sell to consumers.

That’s where the confusion started.

Now that the bureaus all sell scores targeted at the consumer market, many unknowing consumers assume that these scores are the same scores a lender would see. Unfortunately, this is just not the case and it often causes a lot of confusion for those that are looking to refinance a mortgage or trying to qualify for a new car loan.

So what score is the right score and where can I find it online?

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