CFPB Clears Up Consumer Confusion About Credit Scores

Sep 25, 2012, 13:47 ET from Consumer Data Industry Association

WASHINGTON, Sept. 25, 2012 /PRNewswire-USNewswire/ -- "We applaud the Consumer Financial Protection Bureau's credit score report that was released today. We think it puts an end to the debate over the value of educational scores versus those scores lenders use," said Stuart K. Pratt, president and CEO of the Consumer Data Industry Association.

The CFPB study concluded that "correlations across the results of the scoring models were high."  As a result, it determined "that for a majority of consumers the scores produced by different scoring models provided similar information about the relative creditworthiness of the consumers. The study found that different scoring models would place consumers in the same credit-quality category 73-80% of the time."

"The study sheds new light on why consumers can trust the credit score disclosures they receive and the products in the commercial marketplace that help consumers build a deeper understanding of their credit scores and how they affect their financial decisions. Consumers want to be proactive in learning about their scores. Unfortunately, too many  mixed messages have made them hesitant to access the data currently available that will help them better understand the scoring process. This study is good news for consumers who can now be confident that the disclosures and services they are getting today are helping to empower them to receive better prices tomorrow in the credit market," stated Pratt.

The study was built on the foundation of two key facts made clear in the Bureau's 2011 report and reiterated again in this study:

  • "Given this complexity it is unlikely that a consumer will often be able to know the exact score that a particular lender will use to evaluate them."[1] 
  • "Lenders use credit scores produced by many different scoring models." [2] 

"The CFPB is right," said Pratt, "no one score is used by all lenders. However, the credit score is a valuable educational tool and can enable consumers to better understand their creditworthiness relative to other consumers." As the CFPB's report notes, the many credit score options in the marketplace today will help consumers answer these questions.  CDIA recommends that when consumers obtain their credit scores they should ask these important questions:

  1. What credit scoring model was used?
  2. What's the scale?
  3. What does the score I received mean in terms of lending risk?
  4. What are the key factors affecting my credit score?
  5. How might my future financial decisions affect my credit score?

CDIA's members are global leaders in the development of credit score technology.  While the CFPB was not charged by Congress with studying every effective and reliable credit score in the marketplace, this report shows that all such scores designed using the same common principles will help educate consumers with equal effectiveness.   

In support of the CFPB's study, the CDIA will fund a new series of public service announcements focused on encouraging consumers to read the CFPB's report, obtain their credit scores and also, in support of the Consumer Federation of America's latest credit score poll, avail themselves of resources that are available to better understand what does and doesn't affect a credit score.

[1] July 19, 2011 CFPB Report, "The impact of differences between consumer- and creditor-purchased credit scores," Pg. 18.

[2] July 19, 2011 CFPB Report, "The impact of differences between consumer- and creditor-purchased credit scores," Pg. 1.

SOURCE Consumer Data Industry Association