One of the biggest reasons the no-cost credit scores offer a FAKO score is cost. Credit Karma and the other free credit score sites get charged by the credit agencies (either Experian, Equifax or TransUnion, depending on which one they use) to access scores for their users. The educational score is less expensive than a FICO score. Since these websites have a revenue model which doesn’t have a guaranteed source of income (They don’t charge a fee, but they hope users will use products and services they recommend. When they do, the sites receive referral money from those companies where the users sign up.), they need to keep the cost of the credit score as inexpensive as possible.
It Serves a Purpose
While the way these companies attract users to their site is with the offer of a free credit score, the truth is they aren’t really credit score websites, as much as they are credit information and educational sites. In this sense, the credit score itself isn’t all that important. What’s important is understanding and being able to see how the score increases or decreases over time, depending on the actions the user takes. For this purpose, the FAKO score does its job just as well as a FICO score would.
FICO Not Necessarily Better
The free credit score companies would argue the score they give to customers is just as good as a FICO score because there isn’t a single FICO score anyway. While lenders do pull your credit score when you apply for a loan, each industry has their own score which is weighted toward the risk-factors of concern to that particular industry. That means your FICO score will be different depending on the type of loan you want. The score you get for a car loan will be different than one for a credit card, which will be different from one for a mortgage. In all, there are approximately 50 different FICO scores. Since a single FICO score doesn’t exist, and all are slightly different, the FAKO score can be just as useful when discussing general credit topics.
Free FICO Scores Are Relatively New
The last few years the FICO/FAKO debate wasn’t an issue because the only free scores available were FAKO. If you wanted a FICO score, you had to pay for it. That all changed when credit card companies like Discover (as well as a variety of others) began to give out true FICO scores to their customers for free. Until recently, there wasn’t a reason for the no-cost credit score companies to even consider switching.
No Overwhelming Demand for Change
There currently isn’t an overwhelming demand from consumers for any specific type of score. There are likely a number of reasons for this, including many people simply not knowing there’s a difference between the scores. Unless there’s more consumer demand for a FICO score as opposed to a FAKO score, there’s really no incentive for the companies to switch from the ones they’re currently using.
(Photo courtesy of Sean MacEntee)