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Credit Repair News

8/9/2008
Buyer Beware... Will The Real Credit Scores Please Stand Up?

This past weekend I answered my 10,000th email about credit scoring.  This one was very much like many of my previous emails and a sign of what I believe is a growing trend.  Read on…

The subject line of the e-mail was "My FICO scores are wrong, please help me."

Five years ago the email that followed would have been from a confused consumer who didn't really understand that missing payments, too much credit card debt and excessive credit shopping can and will drive your FICO scores into the ground.  Here's a typical email from back then…

Hi John, I need your help.  I applied for a car loan last week and the credit union told me that I was approved but that my rate was going to be 16.9% and I needed to put down at least 10% on the loan.

When I asked them why I was getting such a bad deal they told me it was because my FICO score was too low and that I was a bad credit risk. 

Now, I don't know what all of this FICO stuff means or who these people are but I am not a bad credit risk.  My bankruptcy is 3 years old now and I only have about $20,000 in credit card debt.  And, I make all of my payments on time except for an occasional late payment.

Where do these FICO people get off telling my credit union that I'm a bad credit risk?  I am not a bad credit risk.  How do I reach FICO and how can I get them to reconsider?  I'd like to sue them for what they've done.  Please help me!

The tone of that email was very typical.  The consumer doesn't understand what FICO is or what they do.  They feel violated and angry that some unknown entity is rendering judgment (albeit a correct judgment) against them and there's really nothing they can do about it and nobody they can talk to about it. 

Fast forward to today…

Today I say that more people have at least a basic understanding of what a FICO score is and what it does.  Don't get me wrong; we're still grossly undereducated when it comes to credit reporting, credit scoring and credit management.  But I do feel comfortable saying that 1 in 500 people know what a FICO score is and 1 in 1000 can tell you what their scores are.  That's not great but it's an improvement over the 1 in 10,000 that it was not so many years ago. 

So today when I get an email with that subject line it's much less about the consumer arguing about an incorrect FICO score than it is about them thinking that their FICO scores are wrong because their lenders are telling them a different story about their credit risk. 

Here's a very common email in today's environment…

Hi John.  I've got a huge problem with my FICO scores.  I purchased them online recently and my highest score was a 710.  I applied for a car loan and when they pulled my FICO score from the same credit bureau and my score was 609, a difference of 101 points!!  I know something isn't right.  Can you help me?

Before responding I already know what the problem is.  It's not a broken FICO score and it's not a broken credit report.  The problem is that the consumer has been duped into thinking that the scores they bought are actually used by lenders and have some sort of relevancy in the lending world.

Of course they are confused, why wouldn't they be?  If I go out and buy a car I expect it to do certain things without someone having to tell me what those things are.  Same thing if I buy golf clubs, a lawn mower or a blender.  I buy all of these things with an expectation of what I will be able to use them for. 

Golf club retailers don't buy TV ad space and tell you that "If you buy these golf clubs you'll be able to play golf."  That's already understood.

It's different in the credit scoring world.  There are credit scores, which interpret credit data and assess a consumer's credit or insurance risk, that are being marketed to consumers but not actually used by any lender or insurance company.

This leads to the confusion expressed by the consumer who sent me that second email.  She purchased her credit scores and is under the impression that the scores she bought are actually being seen and used by the lenders that she does business with. 

In this case, and countless others like it, consumers are paying for a worthless score.  And the biggest violators of a consumer's trust are Experian and TransUnion.  There are also other companies that sell worthless scores but those two characters are the biggest offenders. 

In what I consider to be gross hypocrisy, these two credit bureaus will sell YOU a credit score and at the very same time sell a lender or insurance company a completely different credit score.  It's the same consumer, same credit report but different credit score.  All of this leads to confused and angry consumers and hundred of millions of dollars to the companies that sell you these useless scores.

I've made this argument in the past and some naysayers argue that directionally the scores are similar.  This means that if you have good credit then your credit scores, regardless of which scores they are, should all be good.  And, conversely, if your credit reports are bad then your scores, all of them, should be bad too.  And, as such, there's value to them even if lenders don't use them.

Unfortunately, this isn't the case.  The example I used before is not a fabrication.  It's a real email from a real consumer.  In her case there's a clear line crossed between a good credit score (710) and a bad credit score (609).  The 710 was produced by a scoring model that is not used or marketed to any lender.  The 609 is an actual FICO score which is the industry standard used by a vast majority of lenders. 

There is no argument that the consumer can make to convince the lender to use the 710 over the 609.  It's a useless score in every sense of the word. 

Lenders don't use it and it does not even closely represent the consumer's credit risk therefore eliminating any argument that it has some sort of value as an approximate score. 

Any fee that the consumer paid for the scores is wasted money.  In her case she paid $4.95 for the score.  It doesn't sound like much until you consider the huge number of other consumers who have also been duped.

So how would I fix this problem?

Simple, I would require any company selling credit scores or uses them as some sort of incentive to sign up or buy something else to overtly disclaim, in understandable English, that these scores are for marketing purposes only and are absolutely not used by lenders or insurance companies and can be drastically different, in some cases, than other credit scores. 

I say overtly because these companies do have very vague language on their websites disclaiming the value of the scores they sell.  But you'd have better luck finding the Holy Grail then you would finding their disclaimers.  And even if you did find it, the language isn't clear. 

In our free market I don't believe there's anything wrong with building a marketing score to be sold to consumers.  But it has to be made crystal clear to consumers BEFORE they complete their purchase that what they are buying is very different then what their lenders are seeing.

At that point if consumers choose to continue to make their purchase then so be it.  Buyer Beware!


 
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