Borrowers, Get Set to Learn Your Credit Score

Within weeks, millions of American home buyers and mortgage borrowers will be able to get their first official look at their FICO scores, the long-secret credit-rating numbers that frequently govern what they pay for a loan.

Think of it: You’ll now be able to find out with certainty whether you’re an elite FICO 800, a slacker in the high 500s or worse. You’ll be able to track your credit score’s movements on the Internet, and understand why it’s up or down. You’ll be able to quote your FICO score confidently to lenders, or toss it out casually at cocktail parties. You’ll have an entirely new piece of personal identity--sort of an ongoing SAT score for your credit standing.

Pushed by federal and state legislators, the firm that developed the FICO scoring system--Fair, Isaac & Co.--will let individual consumers “pull” their scores directly, beginning in March. The company plans to team with the giant credit information repository Equifax to provide scores, a current credit report and an explanation of why a person’s score is what it is.

For years, FICO scores have been an enigma for most consumers. Virtually every bank, mortgage lender and credit card company--plus landlords, employers and even insurance companies--routinely has had access to consumers’ scores. Yet under long-term contractual agreements among Fair Isaac, lenders and credit information companies, consumers themselves never could see them. Lenders who violated the rule found themselves cut off from credit data--as experienced last year by online lender E-Loan Inc., when it disclosed FICO scores to more than 20,000 consumers.

Scores were kept secret, credit industry officials said, because raw numbers alone explain nothing. How good--or bad--is a 620 FICO score on a statistical scale that runs from 300 to above 800? Based on complex, predictive mathematical models derived from analyses of millions of individual credit reports, the FICO system can be dauntingly difficult to figure out. Some behavioral factors affecting scores are easy to guess: Failures to pay back creditors are big score depressors. Ditto for late payments and maxed-out credit cards.

But other factors are more elusive. For example, people with six or seven credit cards may score better than people with one or none. People with no credit histories whatsoever score poorly. Borrowers using certain types of lenders--especially high-rate consumer-credit loan companies--take a hit on their scores in most cases.

FICO scores began to heavily impact home mortgage borrowers only in the 1990s, as giant financial organizations like Fannie Mae and Freddie Mac shifted to high-speed electronic underwriting systems that found scores more digestible and efficient than traditional, bulky credit reports.

For many loan officers, your FICO score became your credit destiny. They wouldn’t consider you for a mortgage at the prevailing market rate if you didn’t hit some benchmark--a 620 FICO or a 680, for instance. If you scored below the benchmark, your application was rerouted to a different conveyor belt, and you were quoted higher rates and higher fees and were put in the same batch with borrowers deemed to be of higher risk of default.

As consumers discovered the importance of FICO scores, they began demanding to see them. When the credit industry refused, state and federal legislators got involved. The state of California mandates score disclosure to interested borrowers as of this July 1. Bills pending in Congress are expected to mandate disclosure as well.

So Fair Isaac’s new joint venture with Equifax is a response to consumer pressure. When operational, it will allow anyone to visit one or more Web sites and order a current Equifax credit report, a FICO score, and an explanation of the key factors shaping the score. The access Web sites for the new service will be https://www.Equifax.com and https://www.MyFico.com. The latter site is not yet functional, and the Equifax site currently offers online credit reports but not scores. Cost for the score package has not yet been set, but Equifax Vice President J. Michael Cummins said in an interview that it will be “moderate” and affordable. Equifax credit reports go for $8.50 online, so it’s likely the new service will tack a premium on top of that.

One drawback of the forthcoming FICO score concept: Because it uses only Equifax’s proprietary database, the score you obtain is only one of the three scores that may define you to creditors. The information in Equifax’s computers differs in some details from data at the other two giant repositories--Experian and Trans Union. FICO scores can vary by 30 to 100 points among the three repositories. So until all three join with Fair Isaac--something the firm is working on right now--you won’t have all the score numbers that affect your ability to borrow.

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Distributed by the Washington Post Writers Group.