A new FICO mortgage credit score unveiled Tuesday casts a wider
net to capture consumer behavior not previously considered in
whether to grant a home loan. The agency says it will make more
people eligible for a mortgage, but critics say that wider net may
pull in new inaccuracies and create additional privacy concerns.
On July 10, the consumer credit score giant FICO joined with
data firm CoreLogic in announcing the new score designed
specifically for mortgage lenders called the FICO Mortgage Score
Powered by CoreLogic. The mortgage score is based on information
provided by CoreLogic in a detailed report called the CoreScore
Credit Report.
The report includes information that other credit reporting
agencies, such as Experian, TransUnion and Equifax, don't factor
into your traditional reports. If you were late on child support
payments, applied for a payday loan or had trouble paying your rent
on time, it could show up on your CoreScore Credit Report and be
factored into your new FICO mortgage score. But on-time payments on
a second mortgage will also be factored into your score, as well as
all those months you paid your rent like clockwork. It's not
intended as a replacement for traditional FICO scores, but as
another tool for mortgage lenders to use early on, at the
prequalifying stage for borrowers."It's simply bringing in
additional data," says Joanne Gaskin, a director of product
development at FICO.
"The level of detail is unbelievable," says
Mark Munzenburger, director of education at the credit counseling
agency GreenPath Debt Solutions, referring to the CoreScore credit
report. Consumers will be surprised by just how much information
about them is out there, he says. "Consumers really need to be
aware that, more than ever, everything they do with respect to
their finances is somehow tracked and kept in a database."
Is it good for consumers?
Critics say the extra information in the CoreScore credit report
unfairly hurts consumers who have already been knocked down by the
economy, especially those with lower incomes. "When you're
including things like evictions and child support, that's going to
affect those who are at the lower end of the economic spectrum,"
says Emil Fleysher, an attorney in South Florida. "Those who are
going through divorce, anyone with an underwater [mortgage], anyone
who bought or refinanced property between 2004 or 2007, is going to
be at risk."
"The past three or four years, economically, have been a
challenge," adds GreenPath Debt Solution's Munzenburger. "So when
you've got folks who have struggled with on-time payments or
because of unemployment or disability, when you really kind of boil
it down, this report will magnify those problems. It will probably
make it a little bit harder for people to rebuild that credit
quicker."
Advocates counter that the CoreScore report helps consumers more
than it hurts them. That's especially true, they say, for consumers
who have thin files and would have otherwise been turned down by
lenders because they didn't have enough experience with traditional
loans, such as credit cards and auto loans.
Nontraditional data "could help that consumer who has positive
alternative credit get the credit they deserve," says FICO's Joanne
Gaskin.
For example, a consumer who doesn't have any credit cards, but has
repaid a payday loan on time could benefit by the extra information
in the report. (The presence of payday loans in the CoreScore
report are not viewed negatively, she says.)
A consumer who has a mortgage with a credit union that does not
report to the credit bureaus would also benefit from the new
report, says Tim Grace, senior vice president of product
development for CoreLogic. In addition, "short-term installment
loans may help a borrower show good behavior that would not be
visible on his traditional credit report," he says.
Young borrowers may also get a boost, says GreenPath Debt
Solution's Munzenburger. "If somebody had a thin file, somebody
younger, maybe 18 to 22, just getting their first credit card,
there's not much for the lender to go on," he says. However,
nontraditional information could make an important difference.
"That could definitely help, no doubt about it," he adds.
That won't be true for everyone, however. "A lot of the folks
who don't have files may be low or moderate income, and they are
going to go from no file or thin file to bad file and that doesn't
necessarily help them," says Chi Chi Wu, staff attorney with the
National Consumer Law Center.
Critics question accuracy
Wu worries that using the nontraditional data, such as rental
information, could also disadvantage consumers unnecessarily. "We
are concerned that this information shows up without the complete
picture," she says. For example, "if a tenant withholds rent
rightfully under some state laws, that will show up as a black mark
and hurt their chances."
She also questions whether consumers will be able to quickly
dispute and resolve inaccurate information or if their complaints
will "end up in one of these automatic dispute systems that get you
nowhere."
The ability to quickly dispute inaccurate information is
especially important because "much of this data is sourced from
public records," says Fleysher, the Florida attorney. That could
lead to erroneous information getting into the report, he says,
especially if consumers with the same name are mixed up. "In states
such as Florida, personal information that could otherwise be used
to accurately identify us (such as Social Security numbers and
account numbers) must be redacted from the file prior to them being
available for public review," he says. "This opens the door to
misreporting and misapplication of judgments, evictions and other
public records in the person's CoreScore that are based on the
person's name alone."
CoreLogic's Tim Grace says that the company works hard to make
sure the information is accurate. "As a company, we've been doing
this for a long time and the accuracy of our data is our utmost
concern. The majority of the public record data is double-keyed, to
help ensure it is entered into the database as accurately as
possible," said Grace in an email. "The data is specific to the
individuals reflected on the public record document. Personally
identifiable consumer data beyond the name is compared to determine
what data to display for a specific consumer report."
CoreLogic also places the burden partially on consumers to make
sure their report is accurate. "A part of ensuring the report is
accurate is having consumers review their report," said Grace. "We
encourage consumers to get their report, review it and dispute any
information that is deemed inaccurate. CoreLogic Credco will
reinvestigate each disputed item, and make corrections if
necessary. Consumers can also provide a written statement to be
included with their report, for example, if they disagree with the
results of reinvestigation about the data. Additionally, consumers
can place a security freeze on their file, which limits the ability
of lenders to access the consumer's report."
Consumers can dispute an item by contacting CoreLogic Credco at
877-532-8778, says Grace. "At CoreLogic, we take data accuracy and
consumer advocacy very seriously. We will diligently uphold all of
the consumer protection and fair credit reporting regulations to
protect consumer interests."
FICO's Joanne Gaskin says that, for consumers who are in the
middle of a mortgage application, as soon as they dispute an
inaccurate item on their CoreScore credit report and the dispute is
recorded, the disputed item won't be used to calculate their score.
"The moment that a trade line is disputed, it is bypassed in the
credit scoring model," she says. "You can't incorporate something
that the consumer says is erroneous."
Under the Fair Credit Reporting Act, consumers can get any
credit report free, once a year, including CoreLogic's. You have to
do so by contacting the agency issuing the report. Currently,
consumers can obtain one free report per year from each of the
three major credit bureaus -- Experian, Equifax and TransUnion --
at AnnualCreditReport.com. FICO/CoreLogic hope to join
AnnualCreditReport.com's offerings in the near future, but
currently that report is not being offered there.
More will benefit
Gaskin also says that low-income consumers are among the likeliest
consumers to benefit from the new scoring model. "We've done some
analysis to show there is a distinct advantage to this analytic for
the low to moderate income population," she says, especially since
it will open credit doors that would have otherwise been shut. "We
think that it's an opportunity for lenders to expand who they're
giving loans to," she adds.
"In this complicated operating environment, lenders are
increasingly turning to new data sources to help better interpret a
consumer's credit risk, so that more loans can be approved while
mitigating potential losses," said CoreLogic's Tim Grace in a press
release announcing the new score. "For a top-20 lender processing
300,000 applications a year, adopting this new score could
translate into 3,900 more loans approved every year along with a
net financial benefit of $14.5 million. As such, it not only
provides a more complete and predictive evaluation of a consumer's
credit risk profile, but it can empower lenders to better mitigate
risk and approve more loans for more consumers."
According to Grace, over 70 percent of consumers in a study
sample of 300,000 mortgage applicants scored higher with the FICO
mortgage score powered by CoreLogic than with typical credit
scores. "Twenty-four percent saw their scores increase by more than
50 points," he said. "For borrowers in the 580-619 range, those who
are close to a lender's typical credit score minimum, 45 percent of
that population saw their scores improve enough to meet the credit
score threshold."