If information is power, the balance between creditor and borrower is shifting. Consumers' credit scores, the three-digit numbers that banks, auto dealers, and mortgage companies use to help them decide whether to hand over the cash, sport-utility vehicle, or condo, and at what interest rate, are now available to consumers.
Up until recently, that key number -- devised by the major credit bureaus based on information in a consumer's credit report -- was closely guarded information available only to lenders. Just four years ago, consumer advocates lost a heated lobbying battle with credit bureaus and other lenders over whether members of the public had a right to see their scores, just as they do the credit reports on which the numbers are based.
Now the marketplace -- particularly the Web's easy-access, low-cost info bazaar -- has decided consumers can see their credit scores. Since mid-January, iPlace Inc. has been selling credit scores, in tandem with the credit reports on which they are based, through its Qspace.com site. A buyer can get only his or her own credit report and score, which cost $7.95 and $3.95 respectively.
LEGISLATIVE PUSH. iPlace will soon have competition. Fair, Isaac & Co. plans to sell credit scores online by the end of March, while credit bureau Trans Union Corp. expects to be providing them free of charge by midsummer to anyone who purchases a credit report online. Another credit bureau, Experian, plans to offer credit scores to consumers as of July 1 for a $6 fee. Worthknowing.com, which launched its Web site last fall, provides scores and Trans Union credit reports to consumers free of charge, but the scores are on a different scale (1 to 100) than the standard credit score (375 to 900).
Credit scores have been pushed into the open by pent-up demand, the Web's economies of scale, and the California legislature, which passed a law ordering lenders and credit bureaus to give that state's residents access to their scores, starting this July. Similar legislation is pending in Congress.
Giving the credit applicant access to his score "is big news and good news," says Geri Detweiler, author of The Ultimate Credit Handbook. "One of the most confusing problems for consumers has been the fact that a lot of the decisions made about their financial life [are] based on their credit score, but they can't see it."
At the same time, the factors and formula that determine scores can be confusing. Consumer advocates and credit-score providers agree that clear explanations of the main factors affecting each individual's number must be part of the credit-score document. (See accompanying story, "Your Credit: What's in a Number?")
NUMBER CRUNCHING. Although the concept of credit scoring -- assigning values to various credit behavior -- had been around since the early 1960s, the first general-purpose scoring formula, developed by Fair Isaac and known as FICO, has been available since 1989 and is the one to which most lenders refer.
The three main credit bureaus, Trans Union in Chicago, Equifax in Atlanta, and Experian in Orange, Calif., put their individual credit-report databases through the FICO formula to arrive at a score. Just as a consumer's credit report may vary at each bureau, so will the credit score based on that report. However, except for numbers based on seriously erroneous information, the credit scores should be similar.
Because Fair Isaac's model is proprietary, the credit score offered by iPlace, which uses Equifax credit reports as a database, is said to "emulate" the FICO score. The Fair Isaac formula "uses 90 types of variables. We're doing the same thing," explains Laurie Edwards, vice-president for communications at iPlace, which is based in Philadelphia. "The FICO score and ours should be very close."
In addition to providing the credit-report database, Equifax (EFX) has invested $5 million in iPlace. Its credit reports also will provide the database for the credit scores offered by Fair Isaac. Worthknowing uses Trans Union credit reports.
INDUSTRY RESISTANCE. Executives at iPlace, a year-old Internet company providing credit, real estate, and other personal-asset information, are claiming a David vs. Goliath victory in being the first to offer online credit scores that emulate the FICO model. The number of consumers who have purchased credit scores from its Qspace.com site in the four weeks they have been available is "proprietary," says CEO Stuart Siegel, but "is in the six figures." As of Feb. 6, the company's credit scores also have been available for purchase through Yahoo! Other high-profile sites using iPlace data, such as CBS MarketWatch, Quicken.com, and MSN.com, are likely to start offering the scores, too, says Siegel.
Anyone can get a free copy of a personal credit report and a 1-to-100 credit score at Worthknowing.com, which caters to both consumers shopping for a credit card and card issuers looking to market their products, explains founder Jim Eckstein. Typical visitors are those shopping for their first credit card, or those with blemished credit who want to know which cards they qualify for. In the online world, the majority of credit-card applicants are turned down, Eckstein notes.
Industry sources say lenders and credit bureaus resisted sharing credit scores because they didn't want to set up the customer-service operations necessary to explain the scores, especially since informed consumers might try to negotiate a better interest rate. Another factor: Some individuals might try to outwit the formula's logic by artificially manipulating their scores. By Theresa Forsman in New York