WASHINGTON - First it was online lender E-Loan which announced its new policy to hand over to consumers their Fair, Isaac "FICO" credit scores (CU Times, March 29), arguing that consumers have a right to know how their mortgage loans are processed and their credit worthiness. In the latest attack on Fair, Isaac's credit scoring system, Fannie Mae's Chairman and CEO Franklin Raines is calling the system "opaque" and announced the company's plans to wean itself from the FICO credit score. Speaking at the March 20 meeting of the National Community Reinvestment Coalition about "taking the mystery out of loan decisions," Raines said he believes "consumers have a right to know what's in the system. So last January, Fannie Mae revealed the 14 decision factors used by our underwriting system, Desktop Underwriter. But we're going to go farther than that. Our next step is to stop relying on the FICO credit score, which is too opaque. We're going to develop our own credit-assessment model. We won't have a black box or even a glass box. We will have a completely open book. "Consumers have a right to understand what is behind a lender's decision. They have a right to know how they are being judged, on what basis...consumers are still too much in the dark about how these systems work," he further commented. Consumers typically do not see their FICO score unless they're turned down for credit. Craig Watts, consumer affairs manager Fair, Isaacs says just having their credit scores in hand is useless unless consumers understand how the scores affect lenders' credit standards. He explained one of the misconceptions consumers have about their credit score is they think it's a static number. Quite the contrary is true, Watts said, credit scores are dynamic. "Every time a creditor adds information on that consumer, their credit score changes." In 1998, Fair, Isaac revised the FICO score formula so that consumers who made multiple credit applications would not be penalized for making multiple inquiries. As a result, any credit inquiries that appear on a credit report 14 days before a loan decision is made that have to do with the same type of loan, are counted as one inquiry. This policy does not apply to credit card searches, since consumers typically make credit card decisions faster than loan decisions. Watts said Fair, Isaac agrees that consumers have a right to any information and tools lenders use to make their loan decision. But it's just as important understand how the tools are used. -
ekingoff@cutimes.com
