Are FAKO credit scores worthless?

This post comes from Rob Berger at partner blog The Dough Roller.

Recently a number of readers have dismissed free credit score services like Credit Karma, Quizzle and Credit Sesame, noting that those services don't provide you with your "official" FICO score.

The argument goes like this: These FAKO scores, as they're called, don't show you the actual credit score that lenders will use. Therefore, the scores are worthless. Even worse, they may mislead consumers into thinking that their "real" FICO scores are better or worse than they really are.

There are several implicit claims within this argument:

• The FICO score you can get for a fee is the same score a lender will see when you apply for a loan or credit.
• The FAKO score (called an "educational score" in the industry) is at best unreliable and at worst misleading.
• The only reason to get your credit score is in preparation for applying for a loan.

You can probably guess what I think about the FAKO versus FICO controversy. The truth is that the FICO score you can get access to is almost certainly different from what a lender will see (read my article about credit scores and a recent article I wrote for H&R Block to see why). And free services that offer educational scores are a good proxy for your FICO score and a great way to understand and improve your credit.

To test that, I decided to undertake an experiment. Because I refinanced my home mortgage and three rental properties, I already had my official FICO score from two different credit agencies. So I decided to buy my FICO score from myFICO and get my scores from Quizzle, Credit Sesame and Credit Karma. With those scores in hand, I could then compare them. (Post continues below.)

My expectation was that all of these scores would be different. But I also expected the scores to be in a tight range of 20 to 30 points. Here were the results:

Official credit scores

My credit scores obtained for the refinances varied, but not by a lot.

• Equifax FICO score: 757.
• TransUnion FICO score: 750.

These scores were pulled about two weeks apart, so that could explain the difference. They were taken from two different credit-reporting agencies, which could also explain the difference.

I pulled my FICO scores via myFICO from both TransUnion and Equifax on the same day. The results were off by just four points.

• TransUnion: 745.
• Equifax: 741.

As you can see, however, both scores varied from the scores the mortgage companies had. One might ask if a difference of 10 to 20 points really matters. The short answer is absolutely. As you'll see in my article on what credit score you need to buy a home, the interest rate you'll get can vary significantly between a score of, say, 750 and 760. Rates don't change every 10 points, but if you go below certain thresholds, the rates can rise.

My FAKO scores

My FAKO scores were all higher than the official scores used by the lenders during my refinancing binge.

• Quizzle: 786. Quizzle offers what's called a CE credit score that's based on your credit report from Experian with a range of 350 to 850.
• Credit Sesame: 773. Credit Sesame uses Experian's National Equivalency Score with a range of 360 to 840.
• Credit Karma: 760. Credit Karma provides a TransRisk score, which is based on your TransUnion report and has a range of 300 to 850.  

So, out of the three FAKO scores, Credit Karma came the closest to the FICO scores used for my refinancing. What's interesting for our purposes is that my Credit Karma score was closer to the actual score used by the mortgage lender than my FICO scores from myFICO.

What does it all mean?

An educational credit score can be a very helpful tool to understand your credit and improve your score. Don't let people who call the scores "FAKO" deter you from taking advantage of these free services.

If you are planning to buy a home in the next year or two, sites like Credit Karma have one additional advantage -- free credit-monitoring service. The last thing you want is something showing up on your credit report by mistake. With credit-monitoring services, you'll know each time a change is made to your report.

If I were concerned about my credit scores, I'd take advantage of Credit Karma, Quizzle, and Credit Sesame.

More on The Dough Roller and MSN Money:

• How to get your free FICO credit score
• List of free online checking accounts
• The best small-business credit cards of 2012
• Estimate your credit score for free
• 4 great cards for so-so credit
• Can you beat your state's average credit score?