Cracking your credit score


Should you as a homebuyer or mortgage applicant get to see your credit score -- that mysterious three-digit number that often determines whether, and at what interest rate, you obtain your home loan?

For years, the inventor of the most widely used credit scores in the real state market -- so-called "FICO" scores -- has banned their dissemination to consumers. Most loan applicants have no idea of their scores because credit bureaus are prohibited contractually by Fair, Isaac & Co., the scoring technology developer, from ever revealing them.

But now one of the largest Internet-based home mortgage lenders, E-Loan Inc., is defying that long-standing prohibition.

E-Loan believes that consumers have a right to see their scores, and says it will show its Web site shoppers and customers their FICO scores no matter what Fair, Isaac's policy.

If E-Loan succeeds, it will be the first time any lender or credit organization has supplied credit scores on a mass basis to the public.

The company says it is offering consumers FICO scores, plus "information on how their score was determined and what the rating means," as part of a new "personalized loan management account" that was added to its Web site ( last week.

Though Fair, Isaac had no immediate comment on E-Loan's program, a spokesman for the company said "it is reasonable to expect some reaction from us" -- possibly a move against whatever online credit agencies are supplying FICO scores to E-Loan.

Credit scores are among the most important, but least understood, features of the American home mortgage market.

Each of the three giant, private credit "repositories" -- Experian, Equifax and Trans Union -- are licensed by Fair, Isaac to run individual credit file data through its proprietary statistical models to produce scores. The scores purport to predict the likelihood of future payment defaults by loan applicants, and are highly regarded by lenders and investors.

FICO scores generally run from the 400s to the high 800s. A low score suggests an applicant will be a higher risk to the lender.

A high score suggests the opposite. Independent studies of FICO scores on tens of thousands of borrowers by Freddie Mac and Fannie Mae have confirmed their value as predictors of mortgage payment defaults.

Minimum scores

Many lenders now use FICO scores as integral parts of their price-setting policies. Mortgage applicants with low scores routinely are charged higher interest rates and fees than applicants with high scores.

Many lenders set specific cut-off points -- say 720 or above -- as the minimum scores they will accept for their most attractive low interest rate and low-fee programs.

Yet, despite the increasing importance of scores, consumers rarely get to see them. Fair, Isaac defends its ban on the grounds that scores and the statistical models that generate them are inherently confusing and complex.

FICO scores are also dynamic; they can change from hour to hour, based on whatever new credit information has been entered into an individual's electronic credit file.

Can vary dramatically

They can also vary dramatically depending on which credit repository generates the score. In 1994, the Federal Trade Commission staff proposed that scores be disclosed to consumers who want them, but the full commission sided with credit industry arguments in favor of nondisclosure.

The chairman and co-founder of E-Loan, Janina Pawlowski, thinks mandatory nondisclosure "is absolutely unfair to the consumer.

"People need to know what their scores are," said Pawlowski in an interview. "They get to see their credit reports, so why do we have to keep their [credit] scores secret inside some black box?"

Especially in an Internet context, "people expect to have access to whatever information is important -- and credit scores are very important when you're applying for a loan."

No legal restriction


rr how E-Loan would respond if, as expected, Fair, Isaac & Co. seeks to block the new program, Pawlowski said her company's lawyers are certain that E-Loan's contracts with online credit-data suppliers "do not prohibit us from releasing scores."

She added that E-Loan "is taking the pro-consumer side on this issue, and I think [Fair, Isaac] will look very bad trying to stop us from providing what the public overwhelmingly wants to see."

The E-Loan FICO score feature is just part of a major revamp of the company's Web-based strategy. Shoppers will now be able to sign up for a "My E-Loan" account that offers them customized "rate-watch" e-mail alerts whenever rates and fees approximate what they need to buy or refinance a home. The same accounts also provide free credit scores and 24-hour status-tracking reports on loans in process.

Could E-Loan's defiant stance on credit scores prompt online and off-line rivals to do the same? Absolutely--if E-Loan can manage to deliver scores over the objections of Fair, Isaac for an extended period of time.

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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