Online Credit Scores Don't Add Up

By EILEEN AJ CONNELLY — AP Personal Finance Writer

NEW YORK (AP) — Beverly and Richard Palmer want to buy a house this year.

Knowing how important credit history is when applying for a mortgage, Beverly went online to check their credit reports and credit scores to see where they stood. They knew there would be some blemishes, she said. "But it wasn't new stuff. We thought we could be in pretty good shape."

Believing they were ready to get the homebuying process started, they called Pat Schilling, the vice president for mortgage lending at Busey Bank in her home town of Champaign, Ill.

The first thing Schilling did was pull the Palmers' credit scores. But the results were about 50 points below what the couple found, and he advised they hold off applying for a mortgage until they boost their scores.

It happens all the time, Schilling said. Customers come in having checked their scores online, only to find out the scores available to consumers on Web sites are far different from the ones the bank uses. A 50- to 60-point difference is not uncommon, he said, and almost every time, the score he gets is the lower one.

"I'm the one that has to break it to them across the table," he added.

It's not uncommon. Michael Dutra has had similar experiences at his office in Providence, R.I. The mortgage adviser with Province Mortgage Associates said it happens so often, his office held an employee seminar explaining the differences between the scores potential borrowers can get and the ones lenders get. "Those scores are more informational scores," he said of the ones available to consumers. "The ones that we get are used to determine likelihood of repayment."

The recession has increased awareness about credit scores as people try to keep a closer watch on their finances. But while many are learning the importance of the various factors that go into determining a credit score — on-time payments, the ratio of debt to available credit, the length of credit history and so forth — there's still a good deal of mystery surrounding the numbers.

For instance, Web sites that sell credit scores don't explain clearly that there are literally hundreds of ways for a score to be computed, and different lenders use different formulas. "It's a little disheartening to find out you just spent X number of dollars for something that isn't useful," said John Ulzheimer, president of educational services for Credit.com.

By far the most popular Web site for consumers is the heavily advertised Freecreditreport.com, operated by Experian, one of the three main credit reporting agencies. In April, more than 6.6 million people visited the site promoted by the cute boy band, compared with 2.4 million for closest rival Equifax.com, according to comScore, which tracks Internet usage.

One of the recent visitors to Freecreditreport.com was Beverly Palmer. Schilling said most of his customers who expect far higher scores than he gets use that site, although he has seen discrepancies from other providers.

The site operator maintains its scores are meant to be educational. "It's not represented to consumers as 'This is the exact score that lenders will see,'" said Susan Henson, director of public relations for Experian. "The intent is to give the consumers the range of risk approximately that a lender would view them. If consumers want to know exactly what that lender is going to be looking at, then they need to consult with a mortgage broker."

The explanation on Freecreditreport.com can't be seen until consumers submit personal information and a credit card number, and then click on a link providing a definition of their score, called a PLUS score. (The credit card will be charged $14.95 per month for a credit monitoring service, unless the customer cancels that service within nine days.)