Thursday, June 10, 2010

John Tesh: Your score? And...what's your score again?

Confused about your score? Your credit score, that is? You're not alone. Many of us are in the dark about these scores that seem to have a large impact on us- our ability to get credit, to buy a car or a house- even our jobs! Credit score

Liz Pulliam Weston, a favorite of ours who puts the common sense to our cents, is here to tell us that the end of these dark ages about our credit scores may be coming to an end.
Free access to your credit scores may be just around the corner. The financial-reform bill recently passed in the Senate passed includes an amendment that would give individuals the right to see their scores if those numbers were used against them in a financial transaction.

In other words, if you were denied a mortgage or insurance, or had to pay more for either one because of your credit, you'd get to see the score that was used to make the decision.
This is a big deal, according to Weston. We've been able to see our credit reports- a history of what we've borrowed and how well we've repaid it- for free since 2003, but the three-digit scores calculated from those reports have continued to carry a price tag.

Consumer advocates, like Weston, have been pushing Congress to give people free access to their scores. But some proposals were mushy on the issue of which scores consumers would get to see.

Knowing the scores

Not all credit scores are created equal, and the credit bureaus are famous for selling consumers "educational" scores that aren't widely used by lenders. And there are many variations of the FICO score, including versions tailored to auto, credit card, installment loan and finance companies that are rarely seen.

"There was a question whether they would wind up with a score that isn't the same one used by the lender or the insurance company," said credit expert John Ulzheimer, who writes for and who advised Sen. Mark Udall, D-Colo., in drafting this amendment. Under the amendment language, "you have a right to see the report and the score that was used. It's a transactional score versus an educational score."

Weston acknowledges that this amendment falls short of the full disclosure she has long wanted to see, which would be to ensure all consumers had free access to their FICOs, the credit scores used by most lenders. (Free FICOs, by the way, is a concept supported by Fair Isaac, the company that created the FICO scoring formula, and vigorously opposed by the credit bureaus that want to sell you those other scores.)

What you could expect to see

But this financial-services amendment is a better deal in some ways. If the amendment becomes law- it still has to survive the reconciliation process, in which the Senate's reform bill is merged with the one passed by the House- it will expand dramatically the universe of relevant scores to which you'll have access if your scores cause you a problem.

"In the past, scores like the FICO auto version have been like a unicorn. People talked about it all the time, but nobody had actually ever seen it," Ulzheimer says. "Now you'll get to see the unicorn."

The world of insurance scores is even more diverse. No one formula dominates this industry, as FICO does lending, and many of the largest insurers have their own proprietary scores. Seeing these numbers could start to peel back the mystery of insurance scoring, just as access to FICO scores a decade ago started cracking open the credit-scoring vault. As more people learned their FICOs and how important they were, the pressure mounted for the score's creators to disclose more about how they worked, and today we know far more about the inner machinery.

Another point about the amendment is that it would cut out the credit bureaus, the companies that have made getting your free annual credit reports so confusing in the first place..

The bureaus that run the federally mandated site, (the ONLY site giving you completely free credit reports one time per year), hammer consumers with advertisements trying to encourage the purchase of credit scores and credit monitoring, when, in fact, you're just trying to get your free reports.

And some operate look-alike sites that appear to cash in on consumer confusion about where to get free reports.

Rather than giving bureaus another opportunity to profit on your financial information and confuse you in the process, the amendment would put the responsibili Credit report ty on the insurer or lender that was evaluating you. These companies are already required to send you a notice that provides free access to the credit report used in making an "adverse action," or decision, against you. The amendment would add the requirement that you be supplied with the score used.

A little less than advertised
There's one area where the amendment's promoters have tripped a bit, and that's in touting this as helpful to people who are looking for work. The wording says people would have a right to a score if the information in their credit reports was used against them, but employers don't look at scores- they typically look only at credit reports, so no scores would be generated in those cases. Using credit to discriminate in employment is a hot issue- as Weston has written about before- but this amendment wouldn't fix that problem.

Other than that, this could be a monumentally big win for consumers, and that's always a step in the right direction!


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