Credit Scores Often Differ From What Lenders See

[frogger]

Wednesday, September 26, 2012

An estimated 20 percent of consumers likely will receive a credit score that's different from the one given to lenders, potentially limiting access to credit for millions of Americans, according a study released Tuesday by the Consumer Financial Protection Bureau.

Consumers are entitled to a free copy of their credit report each year, according to the Fair Credit Reporting Act. Consumer advocates have charged that credit-reporting companies provide varying scores to lenders, likely raising the cost of credit or depriving consumers of it entirely.

The study comes five days before the consumer agency, created by the Dodd-Frank law of 2010, starts supervising credit-reporting companies’ records and practices. The work involves direct review of an estimated 30 businesses, including Equifax Inc., TransUnion Corp. and Experian Plc.

“This study highlights the complexities consumers face in the credit scoring market," Richard Cordray, CFPB's director, wrote in an e-mailed statement. “When consumers buy a credit score, they should be aware that a lender may be using a very different score in making a credit decision."

The CFPB further found that consumers are unlikely to know about the discrepancies between the score they receive and the score lenders see.

“Consumers who have reviewed their own score may expect a certain price from a lender, may waste time and effort applying for loans they are not qualified for, or may accept offers that are worse than they could get,” according to the study.

http://www.collectionscreditrisk.com/news/credit-scores-often-differ-from-what-lenders-see-3011972-1.html?ET=ccrisk:e13650:81359a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=CCR_Newsline_092712_092712

[TBA]

This article made me giggle. Having worked for experian and tu, i see both sides of this. First, of course there are multiple scores. In laymans, the car guy only cares if you pay your car on time, not your collections... Your cc company only cares that you pay you cc on time, etc. Certain lenders put more emphasis on certain types of loans.

But i also get where the consumer doesnt understand this. should there be more of an education out there on this? heck yeah! Is it the bureaus fault that the lenders want this type of scoring? I dont think so.

Not only that, but Fair Isaacs isnt part of the bureaus... It makes money too on scoring and charges the bureaus for each score it produces. So of course the business model is going to suggest that they come up with their own models and dont pay another company to do so.

just my two cents.

[jst4f]

I would think that there is a small finite number of credit scores so they should provide them all. Can that be all that hard for a computer to do?

[kornellred]

The FICO score has been, and will continue to be, the credit score that the vast majority of major lenders rely upon when determining creditworthiness. It is basically the lending industry standard.

[justbroke]

I thought that new regulations require the lender to provide your score and the source upon request and certainly if they decline your application.

[TBA]

I agree that FICO is the main score used by lenders. BUT even fico has different models for each bureau. The scoring system is dynamic, and when there are changes within the data, they make changes as to how data is scored (the score is a predictor of risk - if everyone goes late on their mortgage - the scores will reflect this - something changed that caused everyone to go late...). I remember when Beacon 5.0 was released, most lenders DIDNT jump on board. They stuck with the old beacon model and it was making a difference in b/c paper borrowers - a big one of around 50 points. Two scoring models were running around from fico from the same data (all equifax). And which score was better? It depends on who you talked to...

The moral of the story, inconsistency exists. Scoring was never designed to be the end all be all (read approved/declined) as it has turned into - in the "good old days" lenders would get a manually created report and make up their own "score" of either approved or not approved. The history mattered to the banker at the time. They based lending practices on relationships, not a number.

But that also took time - and with our instant results society, this just wouldnt really work anymore. Its a nasty little cycle.

[patrickmead]

Many lenders are not putting as much weight on scores, more on paystubs, taxes, etc.