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The impact of differences between consumer- and creditor-purchased credit scores

A credit score is a numerical summary of a consumer’s apparent creditworthiness, based on the consumer’s credit report, and reflects the relative likelihood that the consumer will default on a credit obligation. Credit scores can have a significant impact on a consumer’s financial life. Lenders rely on scores extensively in decision making, including the initial decisions of whether to lend and what loan terms to offer, for most types of credit, including mortgages, auto loans, and credit cards. Credit scores also influence the marketing offers that consumers receive, such as offers for credit cards. Further, credit scores affect account-management decisions, like raising or lowering credit limits or changing interest rates. A good credit score can mean access to a wide range of credit products at the better rates available in the market, while a bad credit score can lead to greatly reduced access to credit and much higher borrowing costs.

Lenders use credit scores that are produced by many different scoring models. The most widely used scores are the “FICO scores” sold by FICO (the brand used to identify the Fair Isaac Corporation). There are a number of FICO score models in use by lenders, and many other credit score models besides the FICO scores. Consumers can also purchase a wide range of credit scores. Some scores sold to consumers are used by lenders, but others, referred to as “educational scores,” are either not used by lenders at all or are used only infrequently. It is important to note that many of the credit scores sold to lenders are not offered for sale to consumers.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Consumer Financial Protection Bureau (CFPB) to “conduct a study on the nature, range, and size of variations between the credit scores sold to creditors and those sold to consumers by consumer reporting agencies (CRAs) that compile and maintain files on consumers on a nationwide basis,… and whether such variations disadvantage consumers.” Consumers can purchase scores from the CRAs in several ways. They can purchase scores when they request copies of their credit reports directly from the CRAs, or with their annual free credit file disclosure available through . The CRAs or their marketing partners also sell scores as part of “credit monitoring” or “identify theft” products.

When a consumer purchases a score from a CRA, it is likely that the credit score that the consumer receives will not be the same score as that purchased and used by a lender to whom the consumer applies for a loan. This could occur if the score the consumer purchased is an educational score that is not used by lenders, but differences between the score a consumer buys and the score a lender buys can occur for other reasons as well. Since so many scores are in use in the marketplace, it could also be the case that the particular lender to which the consumer applies uses a different scoring model than the one purchased by the consumer, or that the CRA from which the consumer obtains a score is not the same CRA that the lender uses to obtain scores, or that the underlying data in the consumer’s credit report changes significantly between the time the consumer purchases a score and the time the lender obtains a score for that consumer. It is also possible that a consumer and a lender could access different reports from the CRA, if they were to use different identifying information about the consumer. Any of these differences could lead to differences between the credit score a consumer sees and the credit score a lender uses to assess that consumer.

A consumer, unaware of the variety of credit scores available in the marketplace, may purchase a score believing it to be his or her “true” (or only) credit score, when in fact there is no such single score. Believing he or she had purchased a FICO score may lead to dissatisfaction upon learning otherwise. The consumer may be frustrated to learn that they cannot know exactly how a creditor will view them.

But the most significant adverse impact on a consumer from score differences would likely occur if the credit scores the consumer buys give a substantially different impression of his or her credit risk than credit scores that a lender would use. This could occur if there are substantial differences between the scores sold to consumers and those sold to lenders. In this scenario, some consumers may settle for less favorable terms or may forego applying for credit if the scores they purchase lead them to believe they will be viewed as poor credit risks, although the scores received by lenders would imply otherwise. Alternatively, a consumer who incorrectly expects to be considered a good credit risk may apply for loans for which he or she could not qualify, leading to disappointment, wasted effort, and unnecessary inquiries on a credit report, which could depress his or her score further.

This report provides context for understanding these issues by describing the industry as a whole, important industry players, and the complexity of the credit scoring process. It then examines the ways credit scores are obtained and used, and discusses how the differences between the scores provided to creditors and those provided to consumers could disadvantage consumers. Additionally, the report details a substantial data collection and analysis project being carried out by the CFPB that will help characterize the differences between the scores provided to consumers and those provided to creditors.

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