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The Darkness About Your Credit Score

By Jane Bryant Quinn
Washington Post Staff Writer
Tuesday, May 30, 2000

A reader in Modesto, Calif., wrote to ask me where he could find his "risk score."

A risk score, or credit score, is a pretty interesting concept. It compares your financial profile with those of millions of other people. The more traits you share with people who pay their bills on time, the higher your score.

Credit scores can determine whether you'll get a loan or credit card and how high an interest rate you'll pay. Borrowers with higher scores can get lower rates.

Right now, you can't find out what your personal credit score is. Creditors have been holding it tighter than a corset.

But growing consumer curiosity, not to mention suspicion of discrimination, is pressing the industry to disclose.

From February to April, a Web site called eloan.com was giving consumers free access to their scores. E-Loan lets you compare mortgage and other interest rates and apply for a loan online.

Some 25,000 people applied while the offer was up, E-Loan's CEO, Chris Larsen, told my associate, Dori Perrucci. He estimates that around 75 percent of all credit decisions are based on scores alone.

E-Loan was disclosing the most widely used credit score--your "FICO score"--created by Fair, Isaac in San Rafael, Calif. The score is based entirely on the information in your credit report.

But when Fair, Isaac found out what E-Loan was doing, it pulled the plug. It doesn't allow the FICO score to be revealed, unless you were turned down for credit and the lender chooses to tell.

But there are signs that the scoring industry is caving in.

Trans Union (TU), one of the three major credit bureaus, announced last week that it would create a special credit score, for disclosure to consumers.

It's not the score that creditors use to decide who gets credit cards or loans. Still, it will show you how those creditors view you, compared with other borrowers.

Trans Union will also explain how it creates your score, and how you can improve your borrowing profile.

TU scores will be offered later this year, to people who order credit reports. (Not a bad way of selling credit reports, I might add.)

Experian, another major credit bureau, says it will develop a similar product. The third bureau, Equifax, remains a holdout.

In California, legislation was just introduced requiring lenders to reveal credit scores to people who apply for a home mortgage. It would cover all scoring systems, not just FICO scores.

Last January, Fannie Mae, the nation's largest supplier of money to the mortgage market, announced it would develop a lending system that didn't include FICO credit scores.

FICO scores are "a valuable tool," says Fannie Mae's vice president of single-family mortgages, Pam Johnson. They've proved to be a good predictor of who will pay and who will not.

But a "black-box" loan-approval system doesn't tell you why you were turned down, or why you don't qualify for the lowest interest rate.

Fannie Mae's new system, expected in July, will disclose all the personal factors that its lenders consider, and explain specifically how an application might be improved.

Meanwhile, Fair, Isaac is hanging tough.

The company is willing to let mortgage lenders disclose the FICO score at any point in the application process, says Craig Watts, the consumer media relations manager. But that's it. No disclosure for credit cards.

Watts says that bad things might happen if borrowers could always get their credit scores. For example, you might try to manipulate the results, which would make the system less reliable.

But although credit scores do change, they're hard to change in a hurry. They include past behavior, not just your finances now.

The best way to raise your score (surprise!) is to pay on time and reduce your debt.

Watts says there's another reason not to disclose the scores. A single number doesn't mean a lot.

Different lenders use different scores, when deciding who should get a loan or a low-rate credit card. So knowing your personal number won't always tell you exactly where you stand.

But if scores are unrevealing, what's the big deal in telling us what they are?

In my many years of covering personal finance, I've learned one thing: Every time there's a push for more consumer disclosure, the powers-that-be argue that the world is going to end.

That's always baloney. When you finally do learn your credit score, I predict that you'll use that knowledge to run your money better than you do now.

Jane Bryant Quinn welcomes letters on money issues and problems but cannot offer individual financial advice.

© 2000 The Washington Post Company

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