Credit Score Confusion Leads to Controversy
For a key to your financial future, $7 to $20 doesn't seem like much to pay – which is why consumers regularly pony up for a peek at their credit scores. Now a new lawsuit suggests that what they're getting may not be worth it.Consumers can now order their credit scores from more than 20 web sites, up from around five just a few years ago. But while consumers tend to think of one, uniform credit score, there are actually seven different scores for sale, each of which relies on its own magic mix of payment history, credit applications, debt and other factors. In at least one instance, whether consumers understand the difference between credit scores is now a matter for the courts: A new class-action lawsuit alleges one company is deliberately trying to confuse consumers about which score they're buying.
Filed in the southern district of California about two weeks ago, the suit accuses Consumerinfo.com , a subsidiary of credit-reporting bureau Experian, of deceptive advertisements to consumers, according to the complaint. At issue is the PLUS score – often sold for $14.95 with an Experian credit report -- which the lawsuit says is advertised as a credit score used by lenders to determine a consumer's creditworthiness. The lawsuit claims that the company's fine print states the score "is not currently sold to lenders." "This is a proprietary scoring system sold to consumers that has no value in the marketplace," says Jason Hartley, a partner at Stueve Siegel Hanson LLP who's representing the plaintiff.
An Experian spokeswoman says the company's policy prohibits it from sharing "any information regarding threatened or ongoing litigation, if any." (The company has several more weeks to respond to the lawsuit, says Hartley, but has not yet.)
Experts Explain: How Credit Scores Work
Behind the three-digit number that determines so much about your financial life. ( Watch video )
Other credit bureaus, which market other scores, say lenders don't rely on only one scoring model to determine a borrower's creditworthiness. "There are hundreds of scoring models in use in the market today by a variety of financial institutions and credit providers," says a spokesman for TransUnion, a credit bureau that sells a credit score called VantageScore. "No one credit score [is] used to make decisions about one's creditworthiness," says a spokeswoman for Equifax ( EFX: 37.66*, +0.48, +1.29% ) , which also sells its proprietary score as well as the FICO score.Behind the three-digit number that determines so much about your financial life. ( Watch video )According to the lawsuit, there's more to it. While banks and other lenders may subscribe to or access many different scores, the FICO score, created by Fair Isaac Corp. ( FICO: 29.48*, +0.58, +2.00% ) , is by far the most widely-used, by more than 90% of lenders, according to the lawsuit. Its popularity is in part due to the fact that Fair Isaac developed the first general risk credit score in the late 1980s, says John Ulzheimer, president of consumer education at SmartCredit.com , a credit monitoring site. "It's really your FICO score that matters."
Given the increased marketing of credit scores, analysts say they expect to see more lawsuits like the one filed in California. "There's no question there will be people pursuing cases against other companies – we wanted to start off going after the big guy," says Hartley.
While many of the scores currently for sale rely on similar sets of data, there can be significant differences. For example, VantageScore, which is sold to consumers by Experian and TransUnion, ranges from 501 to 990, while a credit score sold by Equifax's credit ranges from 280 to 850, and FICO scores range from 300 to 850. Others add extra information. For example, in December, Experian started factoring in data about on-time rental payments in some renters' credit reports, data that would impact a VantageScore from that bureau, although a VantageScore from another bureau would not take that into account.
But even a small difference between two credit scores can be enough to confuse a consumer, says Odysseas Papadimitriou, chief executive at CardHub.com . Like the FICO score, the Experian PLUS score maxes out at 850, and it's often quite close to the FICO score; the difference could be around 40 points, says Ulzheimer. That's enough for lenders, who consider a 40-point differential enough to offer better terms to higher scorers. If a bank is relying primarily on the FICO score, a consumer with a high PLUS score but a lower FICO score could find himself disappointed by the bank.
Many companies simply say their scores are meant for educational purposes and that they often give the consumer a ballpark range of where they'll stand with the lender. "It gives a great representation of how your credit is doing," says Catherine Buzzitta, director of marketing at Quizzle.com , which offers its CE Score to consumers with a credit report for free every six months and charges $7 for more frequent access.
For consumers who are satisfied with a ballpark estimate of their credit scores, there are also free options. Bankrate.com features a credit score estimator where consumers plug in information about their credit lines and debt load to get a free estimate of their FICO score; iPhone users have a similar option via the free myFICO app . Sites like CreditSesame.com , CreditKarma.com and Quizzle also offer credit scores for free.
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