Consumer Credit Scores Vary From What Lenders See, CFPB Says

Carter Dougherty
©2012 Bloomberg News
September 25, 2012

(Updates with reaction from consumer and industry groups beginning in fifth paragraph)

Sept. 25 (Bloomberg) — One in five U.S. consumers is likely to receive a credit score different from the one given to lenders, potentially closing off access to credit for millions of Americans, the Consumer Financial Protection Bureau found in a study released today.

The study comes five days before the consumer agency, created by the Dodd-Frank law of 2010, begins supervision of credit-reporting companies’ records and practices. The work involves direct review of about 30 businesses, including the three biggest, Equifax Inc., Experian Plc and TransUnion Corp.

“This study highlights the complexities consumers face in the credit scoring market,” Richard Cordray, the agency’s director, said in an e-mailed statement. “When consumers buy a credit score, they should be aware that a lender may be using a very different score in making a credit decision.”

Under the Fair Credit Reporting Act, consumers are entitled to a free copy of their credit report each year. Consumer advocates have charged that credit-reporting companies provide varying scores to lenders, potentially raising the cost of credit or depriving consumers of it entirely.

“This is like choosing what college to apply to without knowing your SAT or ACT scores, or whether the college uses ACT or SAT,” Chi Chi Wu, an attorney with the Boston-based National Consumer Law Center, said in an interview.

Wu said the report highlights the need for new legislation that would give consumers access to any credit report or score prepared about them.

Mostly Right

Stuart Pratt, head of the Washington-based Consumer Data Industry Association, underscores that the study shows how “73 to 80 percent of the time” the information consumers receive is correct.

He said that in the cases where there is a difference between the information the lender and consumer receive, it may have no effect on what kind of loan is or is not made. Much will depend, Pratt said in an interview, on how the lender uses the score in its decision-making.

“We can’t take this as absolute truth,” Pratt said.

The CFPB found that one in five consumers would likely receive a “meaningfully different” score than their lender, potentially resulting in harm to those consumers. At the same time, consumers are unlikely to know about the discrepancy.

“Consumers who have reviewed their own score may expect a certain price from a lender, may waste time and effort applying for loans they are not qualified for, or may accept offers that are worse than they could get,” according to the study.

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