On July 19, the Consumer Financial ProtectionBureau (CFPB) released its report to Congress, The Impact ofDifferences Between Consumer- and Creditor-Purchased Credit Scores.It mandate was to conduct a study on the nature, range, and size ofvariations between the credit scores sold to creditors and thosesold to consumers by consumer reporting agencies (CRAs) thatcompile and maintain files on consumers on a nationwide basis,… andwhether such variations disadvantage consumers. The subtitlecould have been, It’s Complicated.
Consumer credit scores have been available to the public for about10 years now. To the credit of the industry and to consumers, agreat deal of attention and interest has been placed on scores, therole they play in credit decisioning, and their potential value ineducating consumers. Just as the original FICO score provided arevolutionary means of quickly summarizing bureau data, the scoresalso held the promise of providing a simple summary to consumersfrom very complex data. One of the problems, of course, is thatscoring was developed for businesses and for customization, not tobe consumer-friendly or universally comparable.
The report outlines the main suppliers of scores and monitoringservices. But it also notes that the score a consumer purchases maynot be the same as the one used by the issuer, that it is nearlyimpossible for the consumer to know and understand this, andissuers may use custom scores not publicly available. Theconclusion: There are numerous credit scores that could becalculated for a consumer, using different scoring models or datafrom different CRAs, and each of those scores will change over timeas the information in a consumer’s credit report evolves. Giventhis complexity, it is unlikely that a consumer will often be ableto know the exact score that a particular lender will use toevaluate them.
The sequel to It’s Complicated will be coming, as the CFPBpromises, In subsequent analysis the CFPB will obtain andanalyze data that shed further light on differences in scores andthe significance of related concerns. That’s one sequel sureto be worth seeing.