by Justine Rivero
Monday, August 29, 2011

If you only read one article about credit scores this year, read this

The average credit score nationwide is 666, according to
That’s not only an ominous number, but can be a costly one.

Based on’s data, the trend amongst lenders shows that a 660
credit score is the threshold to be approved for a mortgage, auto loan and
unsecured credit card. Digging deeper into consumers’ credit health, nearly 40%
of consumers have a credit score below 660. That means 4 out of 10 Americans
would likely be denied for a mortgage and auto loan, charged sky-high interest
rates, and only qualify for a secured credit card.

With credit scores controlling consumers’ access to credit and the prices
they pay for lending products, Americans must take control of their credit

In the fine line between approval and denial in lending, consumers deserve to
know more so they can do more about their credit health. While recent federal
regulations have nudged open the door on consumers’ access to credit, it’s not
enough. Consumers must be empowered to actively manage their credit, not just
when they are transacting but also in their daily financial life.

As legislation and economic changes evolve the credit industry, consumers’
access to credit scores must be broadened. Here’s what you need to know about
credit now.

1. It’s your consumer right to get a free credit score! Thanks to a
recent federal regulation, consumers who are denied on a credit application or
receive higher interests due to their credit profile are entitled to see their
credit score for free. This only applies to declined consumers, so it begs the
question: why aren’t all consumers getting their credit score for free? With
such significant impact on accessing and pricing of financial products, free
credit score access should be a right of all consumers. We may see government
efforts to provide free credit score access on the horizon. Once a mysterious
and proprietary secret of the credit industry, credit scores are becoming a
powerful tool in the hands of consumers.

2. Standards for accessing credit are always in motion. Once upon a
time, the general “good” credit score standard was 660. During the recession’s
credit crunch, the standard jumped to 720. It appears some credit card issuers
are again expanding their credit standards and approving lower credit tiers.
Some mortgage lenders say a 720 credit score is needed to get the best mortgage
rate, while others say 750 is the new standard. Additionally, lenders are
increasingly focusing on other credit details aside from your three digit score.
For example, a consumer can have a 780 credit score, considered in the excellent
range, and be denied on a credit card application because their credit history
is simply not long enough. It’ll take time and economic stability till lenders
comfortably agree on credit score standards; hopefully that keeps you on your
toes and improving credit health everyday.

3. It’s not enough to check your credit score. One drawback of the
federal regulation is its limitations. Giving consumers access to their credit
after being denied is too little, too late. Credit scores can fluctuate
suddenly, so a single snapshot isn’t enough. What’s necessary is for consumers
to monitor their credit. Whether you have a 550 or an 800, tracking trends in
your credit use and credit score helps identify areas to improve, habits to
avoid, and most importantly, makes you conscious of how day-to-day financial
decisions impacts your credit health. You might need several months’ cushion to
polish up your score, so begin monitoring your credit as soon as you plan to buy
a home or car, or apply for a loan or credit card. If you aren’t applying for
credit but currently have a credit card, it’s still imperative to stay on top of
your credit health. Issuers periodically do an account review, and if any new
credit blemishes appear, it could affect your card terms. Proactively use credit
score monitoring services so you, and not lenders, are the first to know about
recent changes on your credit.

4. Expect credit score differences. The federal regulation also shined
light on the fact that there are dozens of credit score models in use.
While many consumers consider FICO to be the “real” score and everything else to
be a “FAKO”, the truth is that every lender chooses differently: there are the
credit bureau-specific models, the VantageScore, the FICO score, scores specific
to lender type like mortgage, auto and credit card issuers, and even models
particular to certain banks. If your TransUnion score and VantageScore have a 40
point difference, there isn’t a “more accurate” score. It’s similar to weighing
yourself at home versus the gym or the doctor’s office; the scales show
different numbers because they’re calibrated differently, but ultimately, they
all measure your weight. Rather than obsessing over the three-digit score, focus
on the risk factors involved such as your debt, number of accounts, and credit
use. Just like diet and exercise will reflect in your weight across all scales,
taking action to holistically improve your credit health will reflect across the
broad spectrum of credit score models.

While the recent federal regulation is a positive move for consumers, lenders
have already found loopholes, reports SmartMoney. For example, if the lender
uses its own scoring model, they aren’t required to disclose that credit score
to consumers. Also, insurance companies, which also use a credit score model to
evaluate customers and price premiums, are excluded from this regulation and
aren’t required to disclose credit scores to consumers who are charged a higher

As the Consumer Financial Protection Bureau stretches its reach and more
financial reform finds its legs, consumers must keep challenging Uncle Sam to
keep the heat on the financial industry when it comes to credit score access.
Consumers must also keep putting in the legwork to build healthy credit and keep
an eye on their credit score.

We’re headed in the right direction when it comes to consumers’ access to
their credit score. But don’t walk away from this topic just yet; we barely have
cour foot in the door.