Like many consumers these days I’ve been doing some personal research on the calculation of FICO, Fair Isaac Corporation, credit score calculation. If you don’t know what a FICO score is, or more specifically what yours is, the best advice I can give you is find out now at www.myfico.com. This number directly affects your life in many ways.
Through on-line analysis and many phone calls to the three major credit reporting agencies Experian, Transunion, and Equifax I’ve come to determine that FICO scoring is a horribly unfair analysis for most consumers producing varying results among these three primary credit reporting entities, often as much as 100 points difference on a scale ranging from 350 to 850. The agencies using FICO scores do not even share a common definition of a “perfect score”.
My personal FICO scores (they should always be addressed in plural) are not bad now and they’re rising. But like anyone who embarks upon the journey of deciphering FICO, I could not determine how this numerical calculation could possibly be indicative of a persons true credit worthiness and therefore how it can be legal under the terms of the 1996 Fair Credit Reporting Act, or FCRA. Almost anyone who investigates the way a score is calculated is certain to be left with more questions than answers.
My personal investigation began after an auto dealership’s financial manager informed me that medical collections were adversely affecting my score by. These collections derived from unpaid bills from an emergency room visit in 2001 during a time when I did not have medical insurance. Without sending me a single bill the hospital immediately turned over three bills for collection. I quickly learned this is common practice by hospitals, clinics and private medical professionals. Obviously it’s their assumption that if someone can’t afford medical insurance they won’t be able to afford to pay the bill. So why bother mailing one?
I wondered how much these collections affected my score? Well, that completely depends on which credit reporting agency you inquire with. My first inclination was to obtain a “3-in-1” credit report from TrueCredit Corp, a division of Transunion Corp. (which is ironically a place my wife used to work in Mississippi doing of all things; updating credit reports). This report is suppose to contain a credit score from all three major reporting agencies, including Transunion. Turns out the only FICO score that held any merit on this 3-in-1 report was the one for Transunion. Here’s why:
On the same day I obtained the TrueCredit 3-in-1 report for $30 I also obtained my scores directly from Equifax and Experian at a cost of $10 each. Yes, I spent $50 in an attempt to make an accurate determination of my FICO scores. The Equifax and Experian scores I acquired directly varied by as much as 70 points from the scores contained in the 3-in-1 report. – Time to make a phone call to Transunion.
Once I got connected to a Transunion rep, obviously located in a call center in India, I explained my acquisition of the scores and asked for an explanation of the variance in the TrueCredit scores and the directly acquired scores from the other two reporting agencies. The answer almost made me fall out of my chair. In not-so-confident broken English I was told that the TrueCredit website has a disclaimer (i.e. small print) that the scores they provide are only “representations” of consumer credit scores based on information contained in the credit reports from each agency and are therefore not guaranteed to be accurate. To punch me in the gut she added “and they are not necessarily representative of what lenders see when they pull your credit score”.
What in the hell is she talking about?
It’s true. The FICO scores you obtain on-line may not be the same as the score a lender sees when obtaining your score. It’s only a calculated “representation” of what they may see. So here comes my list of questions I’ve derived regarding lenders, collection agencies, insurance companies and last but not least credit reporting agencies (CRA’s):
1. Shouldn’t there be a law stating that consumers have access to the EXACT credit score that will be seen by lenders relative to the three major reporting agencies? This seems like common sense consumer law to me.
2. Shouldn’t a credit score be derived from only those items in a consumers credit report for which the consumer has directly and intentionally obligated his/herself? Signing that you agree to pay all fees associated with medical care when your shoulder is dislocated or your leg is broken should be looked at as signing under duress and therefore deemed ineligible for reporting.
3. Furthermore wouldn’t it make sense that any debt a consumer is not able to negotiate of his/her free will be deemed ineligible for reporting? When was the last time you went to a hospital and the fees were explained to you up front and the option to defer treatment was provided?
4. To continue in the area of medical collections shouldn’t be unlawful for a medical practice to turn over a bill for collection without providing proof that the recipient of the treatment was directly billed at least 90 days in advance of the account being turned over for collection?
5. Now to stray from medical collections: why in the world is a FICO score used to determine someone’s auto insurance rate? This practice needs to be outlawed immediately. Note: It has in Washington state and possibly several others by now.
6. Why isn’t the Fair Credit Reporting Act enforced in cases of reporting inaccuracies by the three major credit reporting agencies? These entities have it made. They keep data and they have no responsibility for insuring it’s accuracy. That burden falls upon the consumer to make sure information is reported by his/her creditors accurately. To make the deal even sweeter the consumer has to pay the CRA’s for a copies of their reports to begin checking for inaccuracies (okay so now you get one free copy per agency – whoopee) and then we have to pay again for another report to find out if the disputed inaccuracies have been rectified. Meanwhile the CRA does absolutely nothing but take the consumers money and perform data entry.
If the burden of making sure all credit reports are accurate fell on the credit reporting agencies they would lose almost every dime they ever made while attempting to correct all of the inaccuracies. Given that the information they provide affects almost every consumer in America, I for one have little sympathy – I say make ‘em work.
The final four starts tonight in St. Louis. This reminded me I was there almost one year ago exactly. I imagine a lot of the rich fans and players will be staying in the same hotel P21 holds their annual conference in. I can’t even remember the name of it but it’s right next door to the St. Louis Waldorf.