Rating agency lifts secrecy on mortage credit scores

Nation's Housing

June 18, 2000|By Kenneth Harney

SCORE A BIG win for homebuyers, mortgage applicants and other borrowers: After years of prohibiting consumers from seeing their critically important credit scores, the developer of the scores has now done an abrupt about-face.

Starting sometime next month, mortgage applicants will be able not only to obtain their so-called "FICO" scores from their loan officers, but also to go online to find out what specific factors in their credit profiles are affecting their scores.

Fair, Isaac and Co., the company that created the FICO scores used by virtually all major mortgage lenders to evaluate the creditworthiness of applicants, says it wants to "demystify" its controversial scoring process.

The company has been under siege by critics for refusing to allow consumers to obtain their scores. FICO scores can be particularly important to home mortgage borrowers because many lenders use them to accept or reject applications, and to set rates and fees.

FICO scores run from the 300s to above 900, and are generated through complex statistical models created by the company based on computer analyses of millions of consumers' credit histories. For years the company has prohibited lenders from releasing individual scores. Fair, Isaac's rationale has been that the scores by themselves are potentially confusing to ordinary consumers.

Though the online "score explanation service" won't be operational until mid to late July, Fair, Isaac already has opened up its heretofore tightly shut "black box" to the general public. On June 8, it posted for the first time ever on its Web site (www.fairisaac.com) details of the numerical weightings assigned to different credit-history factors used to develop FICO scores. For example, according to the Web site:

* 35 percent of your score is determined by the payment histories on your credit accounts, from Visa cards to department store and car loans. The model assigns greater weight to recent missed payments than late payments years ago.

* 30 percent of your FICO score is based on the amounts you owe creditors. This includes the total of what you owe on all your accounts, and whether you carry an unpaid balance on certain accounts like credit cards. Interestingly, the statistical model sometimes gives slightly higher scores to people who show an unpaid balance on a credit card, with no late payments, than to those who run no balances.

* 15 percent of a FICO score is attributable to the length of time you've been a credit user. The longer, the better, assuming you pay on time.

* 10 percent of your score is based on whether you appear to be loading on new credit. In other words, have you been applying for and receiving new loans in recent months? The more you've done so, the lower goes your score.

* The final 10 percent of a FICO score is governed by the types and "mix" of your credit uses. Though the Web site doesn't say so, consumers who borrow money from finance companies may be penalized slightly because the FICO models associate higher default risks with such lenders' customers.

The new online "scoring service" under development by Fair, Isaac should allow consumers to better understand their specific credit situation. In an interview, Cheri St. John, a Fair, Isaac senior vice president said that in its start-up phase, the service will not directly provide consumers with their scores. Instead, mortgage applicants will be able to ask their lender to show them their scores and then go online to the Fair, Isaac Web site for a more details.

Later in the year, after Fair, Isaac has completed contractual arrangements with the three national credit bureaus - Equifax, Experian and Trans Union - consumers "should be able" to visit the Fair, Isaac score service Web site directly, obtain their credit scores, and receive an analysis of the key factors shaping their scores. The cost "has yet to be determined," according to St. John.

Fair, Isaac's decision to open up its scores and weighting factors to the public comes after intense pressure from consumer groups, mortgage companies, state legislators and federal authorities.

This February, an online mortgage company, E-Loan Inc., broke the long-standing secrecy rule by offering FICO scores - free - to visitors to its Web site. E-Loan was then unceremoniously "unplugged" from online access to FICO scores for any of its customers, and stopped the popular free score program. The California Senate recently passed a bill guaranteeing consumers access to their credit scores. And on Capitol Hill, a bill has been introduced to do the same nationwide.

When can mortgage applicants begin asking their lenders to show them their scores? Now's a good time. If the lender or broker protests, tell them that Fair, Isaac itself says it has no objections to revealing scores "in the context of a lending decision."

The days of top-secret credit scores are over.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

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