Published July 13, 2012
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. 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 Jason Schneider, a spokesman 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 spokesman Jason Schneider 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," wrote Schneider 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 Schneider. "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 Schneider. "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 Tim Grace, senior vice president of product management at CoreLogic 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% 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. "24% 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% of that population saw their scores improve enough to meet the credit score threshold," added CoreLogic spokesman Jason Schneider.