TransUnion, Experian to give consumers
credit scores, but not the ones lenders use
By Pat Curry • Bankrate.com

Responding to consumer demands for more access to the information used by lenders to make credit decisions, two of the nation's three major credit bureaus have announced that they will begin giving consumers direct access to credit scores.

But the numbers will not be the industry-standard scores created by Fair, Isaac and Co., and insiders and consumer advocates are divided on the potential value of the service.

Score one for consumers
On May 15, Trans Union announced it is developing a credit score that it will offer to consumers by the end of the year. While different from the exact score it provides to lenders -- and from the FICO scores it markets on behalf of Fair, Isaac -- the score will be similar to the scores used by lenders to determine a customer's likelihood to repay a loan. The score would come with information on the factors in the consumer's credit history that influenced the number. The score would be provided free of charge with the order of a credit report, which costs $8.

Experian, another major credit bureau, has plans to provide consumers online access to credit scores it will create, starting this fall. No pricing decisions have been made yet.

Using complex statistical models that evaluate tens of thousands of existing credit users, a credit score is supposed to distill all the information in your credit report into a single, three-digit number. It's designed to give lenders a fast, accurate prediction of the risk involved in giving you credit, such as a mortgage, credit card, car loan or even an insurance policy.

Fair, Isaac's score used most
The industry standard -- and the most commonly used measure -- is Fair, Isaac's FICO score.

"The FICO score is the single best summary score of one's creditworthiness," said E-Loan President and COO Joe Kennedy when that site announced earlier this year that it would begin offering consumers direct access to their FICO scores. Though extremely popular with consumers -- more than 14,000 individuals checked their scores in about a month -- the service by E-Loan was pulled in April because Fair, Isaac's contract with the credit bureaus only allows releasing the scores to consumers during a credit-making decision.

Since TransUnion will develop its own score designed for consumers, instead of a score that is used by lenders for credit-making decisions, it does not run afoul of Fair, Isaac's contract restrictions. But some industry watchers are dubious that it will yield anything of value to consumers.

"What use does it have except as a possible revenue source for TransUnion?" asks Roy Jenkins, senior Internet consultant with mortgage portal LoanSpeed.com. "What use is it when the industry standard is the FICO score?"

"It's just an attempt to draw attention away from the real score," says Greg Fisher, founder of creditscoring.com and a strident advocate of full disclosure of FICO scores.

TransUnion spokeswoman Colleen Martin responds that there is no one single score lenders use, and that its score will give consumers "a very accurate picture of their standing in credit risk. It's certainly our intention to make it available to lenders down the road."

Shedding light on the process
Others in the business -- including industry giant Fair, Isaac -- say that any service that begins to shed light on a process that has grown dramatically in the age of instant online credit approval is a good thing.

"It's probably not the same score, but I have to imagine the factors are very similar," says Michael Feldman, cofounder of MortgageIT.com. "It's not so much the score that's important, it's what causes the score. It's late payments or extended credit lines or outstanding judgments. No matter what the scale is, whether it's a credit score from the different bureaus or a FICO score, it's still basically the same information ... It's a matter of education. A score is just an indication of where you fall with other people."

Feldman says offering the score makes "perfect sense and a step in the right direction to empower the consumer with information that impacts their loan application. It's going to help the consumer prepare for a mortgage application. I'm a fan of consumers coming prepared for the process."

Fair, Isaac spokesman Craig Watts says his company, which has borne the brunt of consumers' wrath for its stance that consumers need the assistance of a lending professional to unravel the mysteries of the number, is happy to see the development.

"We appreciate TransUnion's effort to educate consumers," Watts says. "That's definitely in the right direction. Equifax (another credit reporting bureau) was quick to point out that going it alone may not be as valuable as a unified effort, and we'd support movement toward a unified solution, but I'm glad TransUnion is doing that."

Helping enlighten confused consumers
Experian says it decided to offer credit scores online because consumers are "generally confused" about them, and the online environment is best for explaining what the score actually means and how it's used when a consumer applies for credit.

"There has been a lack of communication about risk scores, how they're compiled and how they affect you," says Experian spokeswoman Anissa Yates. "The status quo has been to provide just the score with little explanation. Experian is striving to provide more information."

The major differences between the planned Trans Union and Experian offerings are that TransUnion will provide the consumer-oriented score when a consumer orders a copy of his credit report. Experian is planning to offer the score only on its Web site, and the number will be the same one it markets to lenders. Unlike E-Loan's original service, the information wrapped around the Experian score will include specifics related to the individual's credit report instead of generic information about how credit scores work and the factors that influence them.

"The score we're giving is one of the scores we actually sell to credit grantors," says Joe Greenwald, Experian's marketing director for Consumer Direct Services. "We'll be changing some of the score factor codes to make them easier to understand.

"Our feeling is a score won't be that meaningful, but the information that's around it will be," he says. "There will be some specific information -- what was in their report that most influenced the score. We're being real careful about giving advice, but we want to give them as much education as we can that would put them in a situation to understand what they need to do."

Consumers want to know the score
Consumer interest in the information in their credit reports has changed significantly in the past decade, Greenwald says.

"Ten years ago, people wanted access to the information on their report, they wanted to be able to validate the accuracy of it, and it kind of ended there," he says. "Today, with information being so accessible and consumers more sophisticated, they also want to know what it means and how do I leverage that information to put myself in a better situation? We don't want to just put a score out there for the sake of putting a score out there."

Equifax, the third major credit reporting bureau, said that while it supports expanded disclosure and consumer education, a little information can be a dangerous thing.

"The issue involves not only credit reporting agencies, but credit grantors and credit modeling companies as well," says Equifax executive vice president Bill Catucci. "This uncoordinated action could very well cause harm and confusion to consumers, causing them to take action to better their score when their actions, without thorough understanding, could have the opposite effect."

One of the issues Catucci cites is that there is no single score that's used industry-wide, and when a consumer sees one score, it may not be the one that's used by the lender he chooses. Acceptable scores vary from lender to lender, and many lenders use customized scores.

Different results from the same information
Fair, Isaac's Watts says that while the base of information is the same -- a consumer's credit report -- the results can be different, depending on the weight lenders place on the dozens of attributes in the scoring model. While a mortgage broker may be concerned about any kind of a late payment and place heavy weight on that piece of information, a department store credit card issuer might be less concerned about a late payment to the phone company and place more emphasis on retail payment history.

"There are subtle differences," Watts says. Still, he added, "If you use a generic (score), you wouldn't go too wrong. If I know my score on one scorecard and understand what it means, it wouldn't be wildly different on another scorecard."

A final issue that consumers may not even realize exists in the furor over disclosure is that a credit score is just one kind of score that's generated every day.

"You're only looking at one quarter to a third of the pie," Watts says. "There are also scores for making pre-marketing decisions that predict how likely someone will be to respond to an offer. Those kinds of models may use credit file information, plus other sources of information available to individual businesses. Another piece of the pie is how companies manage existing accounts. That's become a much hotter topic. Consumers are getting scored on things all day long."

Pat Curry is a freelance writer based in Georgia