Now that the credit scoring system is being opened to consumer inspection for the first time, it will be interesting to see whether bank customers are pleased or displeased by what they learn.
Up to now people have been able to buy their credit reports from the big three credit bureaus and other sources but have been unable to find out their actual credit scores - the three-digit, formula-derived numbers based on systems developed by Fair, Isaac & Co. - unless they were turned down for credit.
Since these scores are the ones lenders rely on most heavily when weighing loan decisions, they are arguably more valuable than credit reports in guiding consumers towards loan products for which they would be eligible.
Bowing to public demand for more access to these scores - which are also known under such brand names as Beacon, Emperica, and Experian Fico Score - Fair, Isaac and Equifax Inc. plan to introduce a service by the end of March that will, for a modest and yet-to-be-determined fee, let people buy access to their scores through the Internet.
The service will also offer an explanation of how lenders would view the score, where it falls in a national ranking, and how it could be improved. Customer service representatives will be on call to field inquiries.
In some ways, it makes perfect sense that people should be able to get this information. Having to apply for a loan without being able to pinpoint one's creditworthiness is a bit like having to apply to college without being told one's SAT scores.
On the other hand, as the executives who have guarded the Fair, Isaac scores so closely over the years will attest, a little knowledge can be a dangerous thing. People may bristle when they see a bald, numerical assessment of their financial personality - particularly since those most likely to use such a service are probably the ones who have already been turned down or fear they might be. Moreover, the score alone does not make or break a lending decision.
"This is a brand new market, so we don't actually know the ideal demographic" of who will want to use the service, said Mike Cummins, corporate vice president and general manager of the consumer direct business unit at Equifax. "What we do know is that there is growing interest in this across the country. On our regular consumer disclosure line, calls and inquiries about scores have gone up dramatically. There's a lot of public policy interest, and consumers have a heightened awareness."
Craig Watts, a spokesman for Fair, Isaac, traced the surge in interest to the mid-1990s, when the mortgage industry first began relying heavily on the scores. Fannie Mae and Freddie Mac came out with recommendations about the scores, and suddenly thousands of real estate agents and mortgage lenders became familiar with the Fair, Isaac system, which helped it seep into public consciousness.
In their new spirit of openness, Equifax and Fair, Isaac are encouraging banks and other companies to link to the sites that will be selling the scores (www.equifax.com and www.myfico.com) and to enter into cobranding and reselling arrangements so that they can sell the scores directly to their customers.
If people who use these services do not like what they see and want to change the data, it could pose tough customer service challenges for the credit bureaus and other custodians of such records.
Banks may be wise to participate for public relations and other reasons, but they should proceed carefully.
