Released: May 01, 2008

Not all credit scores created equal

Source: Aleksandra Todorova, Smart Money

AS THE DIRECTOR of finance at a Spring Hill, Fla.-based Chrysler dealership, Marvin Hedrick has had his fair share of skeptical (and unhappy) clients, especially when he has to turn someone down for an auto loan or break the bad news that they’ll have to pay a much higher interest rate than they expected.
It’s an issue Hedrick deals with all too often: Car buyers walk into his office with an inflated sense of their creditworthiness and he has to burst their bubble. Recently, a client came in armed with a copy of a credit report that said her score was 640. When Hedrick pulled the report, however, her score was 600. That 40-point reduction in her score meant the difference between qualifying as a prime borrower and paying 7.85% interest and being considered subprime and getting a loan at 11.64%.

“I have to explain to them that [what they have] is not a true score,” Hedrick says. “They don’t believe me because I work in the car business. But it happens all the time.”

These days, hardly anyone questions the power of the almighty credit score. Lenders use it to determine who qualifies for a loan and what interest rate they get, insurers calculate premiums based on it, and even employers make hiring decisions with it in mind. As a result, consumers are flocking to the credit bureaus to buy their scores. Sales of scores, reports and credit-monitoring services to consumers by credit bureaus generated $488 million in revenues in 2006 and are expected to reach $864 million by 2010, according to market research firm TowerGroup.

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