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What Your Lender's Not Telling You

In 2001, the average card-carrying Joe was given unprecedented access to the banking world's divining rod. After years of denied access, we were finally able to access a key piece of data: our credit score.

Three simple numbers (based on a formula developed by Fair Isaac Corp. and referred to as one's "FICO score"), ranging from the low 300s to the mid-800s, define our credit-worthiness and speak volumes about our financial lives.

The March 2001 Fair Credit Reporting Act amendment was akin to the Securities and Exchange Commission's Regulation Fair Disclosure, whereby publicly traded companies were required to simultaneously share the exact same company information with individual investors that they did with Wall Street insiders. Secrets and half-truths (in the form of omitting information) were no longer tolerated.

But unlike the consumer-friendly guidelines for the securities trade, the lending industry disclosure policy can't quite be described as "full." It turns out that you and your lender are not really on the same page.

In short, you can get a pretty good idea of what your banker sees in you. But the industry is keeping its true feelings about your credit-worthiness to itself. The FICO score for sale to the public is not exactly the same one that lenders use to conduct their business. Instead, you get a consumer version of your credit score. Some community members on the Consumer Credit/Credit Cards discussion board have discovered as much as a 20-point discrepancy between the score they ordered off the site and the one in their mortgage broker's inbox.

Sure, with just a few clicks (and a nominal entrance fee), you can scroll down memory lane for a history of your credit cards, loans, and late payments; figure out what interest rates you'll likely be offered; and even get a glimpse of what could be if you pay off an account here, close one there, get a raise, or refinance. But unlike Regulation FD, the credit-reporting industry is allowed to be selective about what it shares and with whom. The formula used to calculate one's credit score is proprietary (it's how Fair Isaac earns a living, after all), and FICO offers only general guidelines about how your score is calculated.

Those kinds of inconsistencies are alarming, particularly when money decisions in the hundreds of thousands of dollars (say, a typical mortgage) are on the line. Additionally, if you're shopping for insurance for your car or home, understand that those providers consulting credit reports use yet another version of the credit score generator built with their industry's risk models in mind.

So while consumers have access to more personal credit information than ever, the actual data the pros use to make their business decisions are still pretty much off-limits.

Still, know that your payment history and how much you owe accounts for 65% of your overall score. (There are five main ways lenders keep score.) Such information is still extremely useful for those looking to clean up their credit. So until borrowers get their Reg FD passed, view your credit score with a grain of salt and concentrate on the underlying information that goes into forming it.


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