FICO next in line to offer
access to credit scores
By Pat Curry • Bankrate.com

Fair, Isaac & Co., the industry giant that has restricted consumer access to credit scores for years, is now revealing the factors that go into creating the number that lenders use most often to rate a borrower's creditworthiness.

"We posted on the Web site for God and everyone to see more detailed and comprehensive information than ever before on what a FICO score looks at in a credit report," says Fair, Isaac spokesman Craig Watts.

If negotiations with the major credit reporting agencies go well, the next step will be to provide consumers with both the criteria and their scores, effectively ending the secrecy that has traditionally surrounded them.

California-based Fair, Isaac is the creator and owner of the FICO score, the mortgage industry's most commonly used measure for determining credit risk. The mathematical model factors such information as how much debt a person has, how much credit is available on each of his cards, his past payment history and how long he's had credit. The model distills the data to create a single score that ranges from about 300 to 900; the higher the number, the better the score.

Most scores fall in the 600s and 700s. Lenders and credit card issuers are more likely to issue favorable terms to customers with higher scores.

Look to the Web
Target date for offering the Web-based service is the end of July, Watts says, if the credit bureaus will provide Fair, Isaac with the raw data from which to derive the score.

"We're partners with the credit bureaus where the FICO score is concerned; we're competitors in other areas," Watts says. "We're optimistic we'll be able to work out a relationship."

"They've asked us to sit down and speak about that; we'll do that, no doubt," says Walter Rothschild, executive vice president of marketing for Chicago-based Trans Union LLC. "We're convinced this is helpful. The more information, the better."

Until recently, most consumers didn't even know the score existed, much less the factors that determine it or the crucial role it plays in obtaining credit. That's because Fair, Isaac's contract with the major credit reporting agencies -- and by default, the lenders who use the FICO score -- prohibited releasing the score to consumers outside of a lending decision.

The rationale was the score, developed for credit decision-makers, was too complicated for consumers to understand without a lender to explain the factors that go into determining it.

Consumer action speaks loudly
In February, online lender E-LOAN tested the waters by offering consumers their scores and general information about the scoring criteria. More than 14,000 consumers obtained their scores before Fair, Isaac exerted pressure on the credit bureaus to shut off the information pipeline. The service was discontinued in April.

At the same time, consumer demand for the information was building. This spring, several developments arose to make Fair, Isaac's position less defensible. Legislation was introduced both in California state legislature and in Congress to require credit score disclosure. Fannie Mae, the largest provider of mortgage money, announced it would stop using the FICO score in favor of its own model that would allow disclosure, and TransUnion and Experian announced plans to offer their own scores to consumers for the asking.

"There are other services out there that do use computers to provide a thumbnail estimation of your credit standing," Watts says, "but you cut to the chase when you provide an evaluation of the instrument lenders are using to make a determination."

After months of digging in its heels against mounting criticism, Fair, Isaac's reasons for offering the information are varied.

"It looks as though legislation is inevitable, whether at state or national level, for score disclosure," Watts says. "We're also seeing a variety of initiatives to meet the perceived consumer interest in more detailed information about their credit standing. As the developer of the FICO score, we're in the best position to provide the context and explanation for a consumer's credit standing.

"We still think the lender relationship is the best context for a discussion to help a consumer understand their credit standing. The second best would be a credit explanation from Fair, Isaac based on information in the credit report."

A land of educated consumers ...
A senior manager for the national trade association for the credit reporting industry says the focus of all the new scores is right where it should be -- on education.

"I think everybody is concentrating on the right area," says Norm Magnuson, vice president of public affairs for the Associated Credit Bureaus. "A score by itself means nothing. A consumer says, '620 means what?' That's always been the dilemma. How do you create the value underlying the score? You have to keep coming back to the educational benefit."

Disclosure advocates in California welcomed the news.

"We're delighted to see they're moving in that direction," says Alex Creel, senior vice president of governmental affairs for the California Association of Realtors, a cosponsor of legislation -- that cleared the state senate almost unanimously in May-- which requires lenders to disclose both credit scores and the criteria. "We're glad we can be involved in pushing the envelope. You certainly have a right to see something that could cost you thousands of dollars."

With both the score and the factors offered together, E-LOAN cofounder and chairman Janina Pawlowski considers the move a positive step toward a model that will allow consumers to more closely manage their debt.

"I see a time when you can do screens on the computer and play, 'What if?'" Pawlowski says. "What if I wait seven months for that item to go away on my report? What if I pay that debt off? Will I qualify for more? That's where the Internet has to go."

Of course, it's going to cost you
Among the issues that remain to be decided is whether Fair, Isaac will charge for the information. TransUnion will offer the score it is creating and the score's determining factors for free with a copy of a consumer's credit report, which costs $8. Experian has not announced its pricing.

"We haven't decided pricing. We have some homework to do on that," Watts says. "There are consumers who feel the score belongs to them and they should get it for free. But realistically, the score is an analysis of information in a credit report. Consumers do pay for credit reports today, so there is some willingness to pay for additional information."

The other question is whether the company will offer the complete package of information on its site or somewhere else, such as a participating lender or a credit bureau, where consumers would be more likely to look for credit information.

"A lot of consumers are interested in an evaluation in advance of a loan and they're less likely to go to a lender for that," Watts says. "A neutral site seems to be the more likely way to do that. We're talking to the credit bureaus about it. I doubt that people would know to come to Fair, Isaac's site to look for the information. We're not a household word. I don't know that we want to be."

Pat Curry is a freelance writer based in Georgia
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