Here’s why you have many different credit scores
Dear Liz: Have you ever covered the fact that the credit score that a person receives from the reporting agencies is entirely different from the one provided to lenders? The difference I discovered was 819 vs. 710. I’m a retired lawyer who represented investors in securities arbitration for 20 years, so not easily shocked or surprised by financial fraud, but I was.
Answer: The fact that there are many different scoring formulas has come up frequently in this column. What you consider to be fraud is actually a manifestation of capitalism.
Credit bureaus are private, competing companies. So are the creators of scoring formulas. Lenders and other companies that use credit scores have many to choose from.
FICO is the leading credit scoring formula, but rival VantageScore has gained market share in recent years.
Both types of scores come in multiple versions. The latest version of the FICO is the FICO 10, although the FICO 8 continues to be the most-used score.
Meanwhile, mortgage lenders tend to use much older versions of the FICO formula. Scores also can be tweaked for different types of lending, such as auto loans or credit cards.
Credit bureaus have created their own proprietary scores, as well. What this means is that the same underlying data — what’s in your credit report at a given credit bureau — can create significantly different FICO scores, depending on which FICO formula was used.
Even the same type of score, such as a FICO 8, could vary depending on which credit bureau’s information was used and when the score was “pulled” or created. The credit bureaus typically don’t share information with one another. Plus the information in your credit reports is constantly changing as information is added or deleted.
So it isn’t shocking that the score your lender used was different from the one the credit bureau provided you. What would have been surprising is if the number had been the same.
Wells Fargo had found a way to charge some of its customers $30 to transfer funds from one division of the bank to another when paying off a mortgage.
Dear Liz: I am 83 and have always been employed and a regular saver. I find myself in the unusual position of having amassed a considerable estate and, barring a financial or medical catastrophe, probably having more assets than I will use in my lifetime. Of course these assets will pass to my wife or other heirs on my death, but I would like to help them now. I am considering passing on monies to my sons and grandchildren. I find it hard to believe, but is it correct that I can give up to a total of $15,000 per year ($30,000 for a husband and wife) to my children and grandchildren in a given calendar year without federal or state tax implications for either party? Also, does the recipient need to be a close relative for this transaction to take place without creating a tax liability for either entity?
Answer: Right now you can give away millions of dollars without owing gift taxes. Gifts are tax-free to the recipient, and there’s no requirement that they be a relative.
The annual gift exemption limit of $15,000 is how much you can give away per recipient without having to file a gift tax return. You and your wife together could give $30,000 to as many people as you wanted without having to file such a return. If you have two married sons who have three children each, you and your wife could give each family of five $150,000 or a total of $300,000 without having to file a gift tax return.
Gift taxes aren’t due until the amount you give away over the annual limit exceeds the lifetime gift and estate exemption limit, which currently is $11.7 million per person.
Given your age and affluence, you should be working with an experienced estate planning attorney to make sure your assets go where you want after your death. The attorney can discuss smart gifting strategies for your individual circumstances.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
