SAN RAFAEL, Calif. - Should consumers receive their credit scores from lenders whenever they apply for a loan? That question is behind the dissention brewing between Fair, Isaac & Co. and online lender E-Loan. Against the expressed wishes of Fair, Isaac, E-Loan is handing over to consumers their Fair, Isaac so-called "FICO" credit scores as part of the company's new "My E-Loan" service. FICO scores are the industry standard used by many financials to determine borrowers' credit worthiness. The scores are derived from algorithms developed by Fair, Isaac and licensed to credit bureaus. E-Loan argues that consumers have the right to know how their mortgage loan is processed and their credit worthiness, said E-Loan chairman Janina Pawlowki. She offered that E-Loan's policy of telling consumers their credit rating helps them manage their debt by helping them to understand how their credit decisions affect their ability to be approved for loans. Fair, Isaac disagrees and posits that just having their credit scores in-hand is useless unless consumers understand how the scores affect lenders' credit standards. "A consumer's credit score is useful for them to know in the context of their discussion with a lender about a lending decision," said Craig Watts, consumer affairs manager, Fair, Isaac. "But outside of that context, it's not particularly useful for a consumer to know their score." For one thing, Watts explained, credit scores are dynamic. "Every time a creditor adds information on that consumer, their credit score changes." It follows to reason that the rate of change varies by consumer - a consumer who has only one line of credit, a rarity these days, and has credit information coming from just one creditor, will have a credit score that changes less frequently than a consumer with multiple lines of credit. That's why, Watts remarked, lenders typically don't hold on to a loan or line-of-credit applicant's credit score - they consider it to be only a snapshot of a consumer's credit history at a particular set point in time. In addition, Watts continued, acceptable credit scores vary from lender to lender. Credit scores generally range from the lower 400s to the high 800s, with a higher score predicting a lower credit risk. The credit-scoring model used for one loan decision may not be the same model used on another loan application. Likewise, a credit score that's acceptable to one lender may be unacceptable to another. Lastly, lenders evaluate a lot of information-not just a consumer's credit score-when they make their loan or credit decision. Lenders have even been known to turn down an application for a line-of-credit or a loan even though the applicant has a high credit score, because of a credit risk blip that shows up on the radar screen, Watts noted. Watts does not dispute that consumers have a right to information concerning any tools lenders use to make their loan decisions, "but it's crucial that consumers understand the tools and how they're used by the lender. Consumers need to raise questions with the lenders, not the credit scoring reporting companies. They should be asking about other important criteria considered by the lenders in making their decision and finding out how much weight the lender puts on the various criteria. " As for Fair, Isaac's dialogue with E-Loan over the issue, Watts said, "Fair, Isaac has communicated with E-Loan that we think it is an inappropriate forum for them to be disclosing consumers' credit score, that the service has the potential of misleading consumers. Fair, Isaac has no say on lenders' policies. However, we're hoping E-loan will change the way they're providing loans and credit history information to consumers." According to San Francisco Business Times, My E-Loan will interpre consumers' FICO scores and offer free information concerning how the scores were determined and what the consumer can do to improve their score. The company plans to announce its own credit reporting services, available for a fee, later this year. -
ekingoff@cutimes.com
