Want To Learn More About Your Credit Score....

A hearing was held last Wednesday by the Subcommittee on Financial Institutions and Consumer Credit Hearing.

Title:  Keeping Score of Credit Scores:  An Overview of Credit Scores, Credit Reports and Their Impact on Consumers

Participants:

First Panel:

• Mr. Evan Hendricks, Editor/Publisher, Privacy Times
• Mr. Stuart K. Pratt, President and CEO, Consumer Data Industry Association
• Mr. Tom Quinn, Vice President, Global Scoring Solutions, FICO
• Mr. Barrett Burns, President & CEO, VantageScore Solutions, LLC
• Mr. Chet D. Wiermanski, Global Chief Scientist, Analytic Decision Services, TransUnion LLC
• Mr. Stan Oliai, Senior Vice President, Decision Sciences, Experian Decision Analytics, Experian
• Ms. Myra K. Hart, PhD., Senior Vice President, Analytical Services, Equifax Inc.
• Ms. Anne P. Fortney, Partner, Hudson Cook, LLP

Second Panel:

• Ms. Sandra Braunstein, Director, Division of Consumer and Community Affairs, Federal Reserve Board of Governors
• Mr. David Vladeck, Director, Bureau of Consumer Protection, Federal Trade Commission

Transcript (prepared by SLA):  Download Committee on Financial Services_Hearing_March_2010

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A few highlights I gleaned from skimming the transcript:

• Consumers often don't have access to credit scores actually utilized by lenders to make credit decisions (Chairman Gutierrez):   "For instance, as Mr. Hendricks will mention in his testimonies, consumers are not commonly allowed to have access to the scores that lenders and other financial consumers of data actually use to make lending decisions. Let me repeat that. For instance, as we will hear in the testimony today, consumers, Americans are not commonly allowed access to the scores that lenders and other institutional consumers of data actually use to make lending decisions. Instead you are showed the educational score. That is not the score used by the lenders to determine necessarily."

• What matters when it comes to credit scores (Quinn):  "However, from our perspective, the fundamental factors that drive the score calculation are very transparent. So, it's consumers who pay their bills on time, who kept their debt levels reasonably low, who only seek credit when they need credit, are going to generally result in a more favorable score."

• How closing a credit card account can lower your credit scores (Quinn):  "However, we do look at what's called the utilization calculation. So, using a hypothetical example, if a consumer had two credit cards and they had $10,000 available to them as credit and $5000 balance, the 5000 divided by the 10,000 is a 50% utilization calculation, and this data shows us that consumers that carry higher utilization patterns are higher risk. So, if the consumer in your situation closed down one of those credit cards, and now let's say, that had a line of $5000, their utilization now looks at 5000 divided by 5000, which makes it 100%. And so then, that ends up potentially costing them points on their credit score because of that action...(Hendricks):  "And so, if you close a credit card, then you can lose credit for how long you've had that credit card, which is 15% of your score."

• On the market penetration of the various credit scores (Hendricks):  "Okay. Let me ask your point of view from a consumer's point of view. The FICO score according to the numbers is used by 75% of the lenders. So when a consumer goes to myFICO.com and buys his FICO score, he knows that's a score that's used by lenders. When you go to TransUnion and buy your true credit score that's based on the TransUnion mode, that's not used by lenders. If you go to Experian or FreeCreditReport.com and buy your Plus score, that again is not used by lenders. The VantageScore is used by lenders but I'm not sure we have good data yet on how far it has penetrated the market."

• Describes implementation of new risk-based pricing disclosure (Braunstein):  "In January, the Board and the FTC issued final rules to implement the risk-based pricing provisions of the FACT Act. Creditors still engage in risk-based pricing generally offer more favorable terms to consumers with good credit histories and less favorable terms to consumers with imperfect credit histories.
  
  The risk-based pricing provisions give consumers who are granted credit on less favorable terms protection similar to those afforded to consumers who are denied credit. Denied consumers receive an Adverse Action Notice. Under the new rules, a creditor who uses credit reports can provide a risk-based pricing notice to those consumers who receive credit on terms that are not as favorable as the firms the creditor has provided to other customers. Those consumers can contact the credit bureau to obtain a free copy of their credit report.
  
  As an alternative, creditors can provide a credit score disclosure instead of a risk-based pricing notice. Under the credit score disclosure alternative, consumers who apply for credit automatically receive a free credit score and information about their score in the notice. I expect that many creditors will use the risk for credit score alternative which will give consumers access to their credit scores without charge."

• FTC's attempts to improve accuracy of reports (Vladeck):  "First, we've recently issued amendments to the free credit report rule to address deceptive advertising in the advertising of free credit reports. With the new disclosures that we're requiring, we believe we strengthen the ability of consumers to obtain no strings attached free credit reports. Additionally, we've worked with other agencies including the Federal Reserve to issue the Furnisher Rules which call on furnishers to improve the accuracy of information they provide to the credit reporting agencies and give consumers the right to dispute errors in their reports directly with the furnishers of the information as well as to making disputes with the consumer reporting agencies."

• On improving the ability of consumers to dispute items on their credit report (Vladeck):  "First is the Furnisher Rule takes effect in July. We think that this is going to have a substantial impact on the ability of consumers to dispute information in their credit files in getting the answer. And that coupled with the accuracy parts and the dispute parts of the rules, we think we'll go some way to do it. I would also say we're doing this through enforcement. We are now requiring collection agencies when there are disputes to go back when there is a consumer dispute to rely more than simply the one page that they get from the debt buying agencies.