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Tom Kelly
Tom Kelly
The Real Estate Adviser

June 15, 2000

Credit: You really are just a number

By TOM KELLY
The Real Estate Advisor

Are your careful about maintaining stellar credit, yet your results seem to yo-yo for no logical reason?

Are you upset with your lender for not making your credit score readily available?

Some help may be on the way.

The folks who developed the controversial use of FICO scoring recently announced that they would soon launch an Internet site that will explain individual credit scores.

A FICO credit score is a mysterious number that frequently determines whether - and at what interest rate - a borrower can qualify for a home mortgage. It was designed by San Rafael, Calif.-based Fair, Isaac and Co. Inc. (FICO). A high FICO score means lower risk to the lender and can open the door to a quicker loan decision and possibly a lower rate. A low score can trigger outright rejection of an application by some lenders or a move toward a higher interest rate.

The three-digit scores are composed of a multitude of credit and spending habits that many consumers do not even consider important.

The company has been in the news lately because of its guarded technique. Long-time industry watchers cannot explain to consumers the critical elements of the score. And, consumers have not been given access to their credit scores, even though they indirectly pay the fee that generates them.

Now, as part of an initial effort to educate consumers in its credit scoring process, the company has made available a list of some of the factors that it presently uses on its company website. The new tool will list the factors used in calculating credit scores and explain how lenders use them in loan decisions. It also will tell consumers with poor scores what they can do to improve them over time.

Some of the general categories that comprise the score include delinquencies, amounts owed, and length of time that credit has been established. The company lists an additional 16 specific indicators of credit-worthiness that checks. What the company will not surrender is your individual score. That’s because Fair, Isaac says it has contract agreements that prevent lenders from disclosing scores to borrowers. The company now is discussing with lenders and credit reporting agencies over changing the present policies.

Recently, online lender E-Loan said it would surrender a customer’s score if the consumer filled out an online form. Cameron King, E-Loan senior vice-president, said he thought it was a borrower’s right to know the score and it was good step toward demystifying the approval process. When Fair, Isaac was notified about E-Loan’s move, the releasing of FICO scores was stopped.

Getting the FICO score from E-Loan took more than a phone call. The company gave consumers free access to their FICO scores when they sign up for a password-protected 'My E-Loan' personal debt-management page. Visitors who wanted information about their credit profile were required to input their names and Social Security numbers. They were then given their FICO score along with some general explanatory content on what the scores mean.

Therein lies another problem. A survey of other lenders showed the most frustrating piece of the picture was an inability to explain the credit formula. Loan officers are at a loss when asked to provide the swiftest and best road to credit recovery. Some nevertheless questioned whether giving borrowers access to raw FICO scores was a responsible move.

The E-Loan site informs borrowers that FICO scores range from the low 300s to about 900 and offers a table to give "a general idea of what your score tells lenders." For those who want more explanation of their scores, E-Loan gives toll-free 800 numbers of Experian, Equifax and Trans Union.

For scores between 620 and 679, says the table, "a lender will take a closer look at your file, "while scores between 585 and 619 make you a higher risk who, you will not be eligible for the best rates and products."

E-Loan provides a frequently-asked-question list on FICO scores cautioning that there are no set rules on how a particular lender uses scores: "Different products and lenders use different guidelines for what is an acceptable score," it says.

"A lot of times customers know they are bringing a lot of bad baggage to us," said Washington Mutual's Jim Gregerson said. "But it's difficult when the FICO score really should be recalculated or questioned. That’s when the credit companies should step up, but many times they don’t because of the process."

The home-loan process already is complicated. Why make matters worse with a credit-scoring system nobody can understand or explain?



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