What’s a Credit Score Really Worth? Maybe Not Much After This

Experian
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If you’re checking out your credit score, there’s something you should know.

The Consumer Financial Protection Bureau has called out all three of the major credit reporting agencies — Experian, Equifax and TransUnion — for overhyping the credit scores they’re selling.

Good news: They’ve also been ordered to change their ways.

The most recent credit agency the CFPB targeted is Experian. Last week, the CFPB announced it had fined Experian $3 million for “deceiving consumers about the use of credit scores it sold to consumers.”

“Experian claimed the credit scores it marketed and provided to consumers were used by lenders to make credit decisions,” the CFPB said.

The bureau continued: “In fact, lenders did not use Experian’s scores to make those decisions. The CFPB ordered Experian to truthfully represent how its credit scores are used.”

Experian admitted no wrongdoing but agreed to pay the fine.

This comes on the heels of a CFPB crackdown on the other two big credit reporting agencies in January. The bureau fined Equifax and TransUnion a total of $23 million to settle claims they were deceiving customers.

What were they doing wrong?

They advertised their credit scores as being the same scores banks are looking at when deciding whether to loan you money.

But lenders tend to use a variety of credit scores, so no one rating is universally accepted by every lender, the CFPB said. Instead, lenders “rely in part on these scores when deciding whether to extend credit.”

The CFPB has ordered the credit agencies to be more accurate in what they tell customers.

What Does This Mean for You?

Just be aware that the credit score you’re seeing isn’t necessarily the same one that the bank is using to judge how creditworthy you are.

In addition to the credit scores that are actually used by lenders, several companies have developed so-called ‘educational credit scores,’ which lenders rarely, if ever, use,” the CFPB said. “These scores are intended to inform consumers.”

In other words, your credit scores can still be a useful tool to see roughly where you stand in the eyes of lenders.

Everyone is entitled to a free copy of their credit report — an accounting of all credit-related activity — once a year from each of the three biggest credit reporting agencies. It’s easy to do through AnnualCreditReport.com.

A credit report is a summary of your credit history, while a credit score — a number that typically ranges from 300 to 850 — is an estimate of how creditworthy you are based on your credit report.

Here’s how to build a good credit score:

  • Pay your bills on time.
  • Keep balances on your cards well below the limit.
  • Keep credit accounts open.

Your Turn: Have you taken action to increase your credit score?

Mike Brassfield (mike@thepennyhoarder.com) is a senior writer at The Penny Hoarder. His credit rating could be way, way better.