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Blogging for Change Blogging For Change
by sitecore\kmcgrigg on July 22, 2011

I just finished reading the Consumer Financial Protection Bureau report on credit scores.  This report was published on July 19, 2011 to meet a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Dodd-Frank Act also made amendments to the Fair Credit Reporting Act related to credit scoring that became effective on July 21, 2011.  While there is a lot of information to digest in the report and the Acts, following are some take-aways regarding credit scores that you need to know now.

  • There's more than one type of credit scoreGeneric scores are used to predict behavior for a wide range of credit products.  Industry scores are specific to one type of credit, such as vehicle loans.  Some lenders create their own custom scores and consumers might receive what is called an educational score.
  • There are many scoring models for each type of score. There are many different scoring models used by lenders.  Even FICO, responsible for 90% of generic credit scores in 2010, has numerous scoring models.  This means that the score you see may not be the same score that a lender sees.
  • Credit scores aren't the only factor considered by lenders.  Other factors that may be considered include your income and employment history. The Equal Credit Opportunity Act (ECOA) prohibits lenders from considering factors like race, gender, and nationality.
  • The definition of "good" credit changes.  While most people consider a score of 680 or more to be "good," the definition of "good" changes over time and can vary from lender to lender. Furthermore, not all scoring models use the same scale as FICO (350 to 800).  
  • You may be entitled to a free credit score.  Starting on July 21, 2011, consumers will be provided with credit scores when they (1) are granted credit with less favorable loan terms than other consumers, (2) apply for a mortgage, or (3) are subject to an adverse action such as having an account closed.
  • You are entitled to a free credit report. In accordance with the Fair and Accurate Credit Transactions Act (FACT Act), consumers are entitled to receive one free credit report every 12 months from each of the three major credit bureaus. This has been true since 2003. When you obtain a free report from the central source, the FCRA mandates that you be given the option to purchase a credit score calculated using the credit report.

Consumers may find it frustrating that they receive a score that is different then the one used by lenders.  In fact, the Consumer Financial Protection Bureau's report identifies some potential harms that may result from this, particularly if the consumer believes that they are more or less creditworthy than the lender believes them to be. 

The best thing a consumer can do is to stop focusing on a specific score, but instead concentrate on using credit responsibly and to understand the major factors that contribute to a credit score. These factors include payment history, length of credit history, new accounts, types of accounts held, available credit, and credit utilization.  

Comment(s)

Allan Berger says:
July 28, 2011

This is obviously a game without any standardization. If companies evaluating credit information & scores receive different information than the consumer has access to, then the Dodd-Frank bill missed the boat. The credit applicant and the creditor should be looking at the same report and score, not apples and oranges.



Gold says:
December 15, 2015

Very informative article. I didn't realize that their was that much discrepancy on credit scores. I agree that the consumer should just focus on being responsible and not so much on what their score is.



Linda L-C says:
July 28, 2011

Very informative! While it IS troublesome that lenders have a different view of our credit history I agree that our efforts to clean up our credit is most important. When we reach our individual goal we won't have to worry as our credit score/record should reflect all of our hard work. Thank you for this article, Linda



mohammad says:
July 28, 2011
Website: hotmail

I did short sale of my own resident because of my financial and health could not keep the house, my lawyer said my bank will not persiue me because they accept but the bank web say they may persiue me, it happen about 2 yrs still in record of credit bureaues can you tell me what is the story and where l can contact to fix my credit problem? thanks



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