Free Credit Scores?

In 2003 FACTA (The Fair and Accurate Credit Transactions Act) amended the FCRA (Fair Credit Reporting Act) to mandate free credit reports to every person in the country from all of the consumer reporting agencies. FACTA also mandated, in section 609, that mortgage lenders had to now provide a copy of the consumer’s score as part of the homeowner notice. Most lenders were providing this notice as part of the closing paperwork. So, homebuyers have enjoyed access to their FICO scores since 2003. Now, thanks to a Senator from Colorado, more consumers might soon have free access to their scores.

Mark Udall (D-Colorado) has proposed the Fair Access to Credit Scores Act (FACS Act). The FACS Act would amend section 615 of the Fair Credit Reporting Act to require the disclosure of credit scores, by the user, as part of their adverse action requirements. This means if you are declined by a lender, insurance company or any other company that depends on a credit report and score, you will get a copy of it. And, even better, if you are approved but at a disadvantaged interest rate or insurance premium you will still get a copy of the score used to make that decision.

This would certainly serve to accomplish a number of things that we consumers have been missing for quite some time.

1. FICO scores based on Experian data – On February 14th of 2009 Experian and FICO officially parted ways and no longer had a myFICO.com partnership. That little Valentine’s Day present officially prevented FICO from selling Experian credit reports and FICO scores based on Experian data to consumers. Consumers still had (and have) access to their FICO scores based on TransUnion and Equifax data from myFICO. Since Sen. Udall’s amendment doesn’t leave it up to the credit bureaus to stick you with an irrelevant VantageScore or PLUS score it seems it seems as if we’ll soon have access to our Experian FICO scores as long as we’ve gone through an adverse action and the lender or insurance company used an Experian credit report.

2. FICO Industry Option scores – FICO builds a variety of semi-customized credit bureau risk scores called Industry Options. These are specially tuned scores for specific types of lending such as bankcard, installment, personal finance, auto and, more recently, for mortgages. These scores have never been available for sale or for free to consumers, ever. But Sen. Udall’s amendment will require the user of the credit report to give you the actual score they used to treat you adversely. So, if they used any of these special FICO scores then you’ll get what nobody has ever gotten…a peak at it.

3. No more generational score confusion – FICO scores, like Windows software, are rebuilt periodically to take advantage of advancements in technology, newer data samples and changes in the predictive value of credit file characteristics. And if all of this sounds like empirical black magic don’t worry, this is actually much more simple than that. Because of these periodic redevelopments there are actually many different versions of the FICO score still in use by lenders today. And since some of these lenders are large customers of the credit bureaus it’s unlikely that the bureaus will strong arm them into converting to newer versions until they chose to do so voluntarily. What this has caused is confusion over scores sold to consumers. For example, my FICO score on Equifax data might be 780 under one version but 797 on another and 772 on another. The one the lender buys might not be the same one that I can buy. Udall’s amendment eliminates this issue because whatever score version the lender is buying is the one I’m going to get.

4. No bait and switch scores – There are four credit scores that are prevalent in the direct-to-consumer market today. They are the FICO score, the VantageScore, the PLUS score and the TransRisk score. Those of you who have purchased your scores online or got them for free in exchange for your credit card information, do you know which one you were given? Most people want the actual score that lenders use, which is the FICO score. The problem is that Experian and TransUnion would rather you purchased their scores rather than FICO’s scores. The problem is that PLUS isn’t even sold to lenders and VantageScore and TransRisk don’t have enough combined market share to fill a row boat. Yet, you’re actually more likely to end up with those scores when you go hunting online than your actual FICO score.

The Udall amendment doesn’t even involve the credit bureaus. They aren’t a party to the score disclosure requirements. Udall either got lucky or did his homework and figured that the bureaus (one in particular) were licking their chops and getting ready to take advantage of the free score requirements like they’ve (one in particular) taken advantage of the free credit report requirements. I mean, why has Experian completely changed their marketing efforts to push free credit scores from free credit reports? It doesn’t take a credit genius to figure that one out.

5. No real complaining by the bureaus or FICO – Behind closed doors the bureaus probably don’t like this new law but since the score being given away have already been purchased by a lender they can’t really complain too loudly. FICO on the other hand should be very happy with this law for a couple of reasons. First, again the scores have been purchased so they’ll get their piece of the action. Second, the majority of scores that will be given away will be FICO scores, which is great branding for them. It really eliminates any chance that competing scores will be able to take advantage of this new rule and steal market share.

The Udall amendment passed the Senate on May 17th. Now it has to be passed in the House and survive the conference process where it could end up taken out or modified. Stay tuned!!