It's your life pared down to three digits. It's a score more looming than the SAT. And some claim the titans of the credit industry are holding it for ransom.The FICO credit score is at the center of a quiet but fierce battle being waged among credit reporting titans Trans Union LLC, Experian and Equifax Inc., and Fair, Isaac & Co., which created the ubiquitous credit-scoring formula. Each claims it has the consumers' interest at heart, but according to some experts, the credit reporting industry is fighting for a way to turn public demand for credit-score access into profit. And considering that FICO scores are the major decision-making factor behind hundreds of millions of credit decisions, the profits can be huge.The potential was made clear by Internet lender E-Loan Inc. in late February when it launched its "My E-Loan" service, which allowed consumers to view their credit scores without charge. In one month, the site attracted more than 25,000 customers. But E-Loan was breaking Fair Isaac's rule prohibiting the disclosure of FICO scores to consumers (unless they were turned down for a loan). Equifax, which supplied the data to E-Loan through Credit InfoNet, forced E-Loan to shut down the program under orders from Fair Isaac, says Chris Larsen, chief executive of E-Loan.E-Loan was giving out FICO scores irresponsibly, charges Craig Watts, the Fair Isaac spokesman. Although consumers could obtain their scores, they weren't given sufficient explanation of the scores' implications, he says. Watts argues that Fair Isaac's strict confidentiality rule--that neither a lender nor a credit bureau may discuss or reveal FICO scores to ordinary consumers--was written specifically to prevent lenders such as E-Loan from confusing consumers with scores that are far more complex than they seem.But in June, Fair Isaac said it planned to ease the curb. At the same time, it said it would launch a Web site similar to the E-Loan service it had shut down four months prior. The new site would enable consumers to look up their credit scores online for an undetermined fee, according to Watts. In addition to the score, the site would do what Watts says E-Loan's failed to do: provide consumers with appropriate, individualized guidance on how to improve their credit scores.Though the Web service would charge a fee, Watts says that Fair Isaac is not trying to make a profit; rather, it wants to provide a tool for consumers interested in improving their credit standing. "We intend to set an industry standard," he says. Meanwhile, Trans Union seems to be following E-Loan's example and is planning to reveal consumer credit scores--but not the FICO. It announced in May that it planned to develop its own credit scoring model, which would be made available free to individuals along with their credit reports. Trans Union charges $8.50 for each report, except in cases where a law prohibits the fee. Trans Union says the score is a mirror of the FICO score that it will market to consumers. This score, however, currently carries no weight among lenders.In a similar attempt to circumvent Fair Isaac confidentiality, mortgage giant Fannie Mae recently reported it was dropping the FICO score from its automated underwriting program. Pamela Johnson, vice president of single-family business, says Fannie Mae will begin using credit report data instead of the FICO score as a factor for the new version of Desktop Underwriter, due out this month. "We think it's important that consumers see what's behind a loan decision," she says. Desktop Underwriter is, on average, used in 300,000 mortgage transactions a month.The mortgage giant had in recent months been under pressure from Congress to make the loaning process more transparent, but Johnson says the move was in no way a reaction to pressure or legislation. Rather, Fannie Mae is conforming to its self-imposed "Mortgage Consumer Bill of Rights," announced by chief executive Franklin D. Raines in January.This move could spell trouble for Fair Isaac, which currently claims that its FICO scores are behind more than 75% of all mortgage loans. However, Johnson does not believe Fannie Mae's decision will detract from Fair Isaac's business, nor did it intend to profit from the switch. Fannie Mae supports the use of FICO scores in manual underwriting and still uses the scores in other aspects of its own business, she says. Tom Midkiff, CEO of Credit InfoNet, believes E-Loan's short-lived success sent signals to the Big Four. "They all saw [the potential] after E-Loan got almost 30,000 customers in a month, and they're saying 'Oh, yeah, there's a market here, there's big bucks here,'" he says. Now each wants to shut out lenders and institutions like E-Loan and position themselves as the consumers' sole conduit for FICO scores, Midkiff asserts. Running into a brick wall, Midkiff says he's tried to gain E-Loan access to an alternative credit scoring model, CreditXpert, which was introduced in May by Neuristics Corp., based in Hunt Valley, MD. Mike Cooper, CEO of Neuristics, says his company is currently discussing with E-Loan the possibility of posting the scores in lieu of the FICO. Neuristics offers CreditXpert directly to online lenders with no confidentiality clauses attached, says Cooper, who plans to spin off the scoring business into its own subsidiary. Though structured to mirror the FICO, CreditXpert is still not the "industry standard" for lenders, and it is not certain that Larsen or the rest of E-Loan are willing make exceptions.Fair Isaac, itself, is having trouble getting its Web site launched. The credit bureaus have refused to provide it with individuals' credit information. Fair Isaac controls the formula but the credit bureaus control the data. "This is not a neutral relationship," says Watts. "We are competitors and, in several aspects, we are also partners." The credit bureaus partner with Fair Isaac to use the FICO scoring model, he says, but at the same time, they market their own competing models.Trans Union will not agree to work with Fair Isaac unless Fair Isaac is "equipped to handle consumer inquiries," says Walter Rothschild, Trans Union's executive vice president of marketing. Such tasks might better be left to companies like Trans Union, he says, which are better prepared to field large numbers of consumer queries. Watts concedes that Fair Isaac has never dealt directly with consumers before.Midkiff and Larsen aren't buying the Big Four's stated interest in consumer concerns. "It all speaks of an industry that doesn't care about the consumer," says Midkiff, who has been working in the credit business for 34 years. Larsen says the holdup can be traced back to Fair Isaac. "We don't see any meat behind their announcement [that they are loosening confidentiality constraints]," he says. "Ultimately it comes down to Fair Isaac being unwilling to release the scores. It's evident it's not where they're going, since they're the ones that control the contract in the first place."The credit bureaus could reap profits with California's "Right to Know" bill, which passed the state Senate in May. If enacted as it stood in mid-July, the bill would allow reporting agencies to charge consumers up to $6 to see their score. Add that figure to the $8.50 federal cap on credit reports and the credit reporting agencies stand to make $14.50 per full credit inquiry. "The California bill really creates a fairly lucrative market for this," says Midkiff. Though not as far along as the California legislation, the federal bill (called the "Fair Credit and Full Disclosure Act") may do the same.Fair Isaac and the credit bureaus say they have no intention of cornering the market for credit scores. Larsen and Midkiff are holding out for the promise of legislation to preempt the Big Four's dealings altogether. "In a nutshell, this is not going to get resolved until a bill gets passed," says Midkiff. "The decision's not going to be made by the industry. That's my gut feeling."
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