(Un)Fair Isaac Corporation

Many facets of your identity are represented by numbers; numbers which reveal a wealth of information about your conduct and state of affairs, past and present. One number, however, surpasses all others in influence and weightiness, yet is farthest from your grasp. Data gathered from your FICO credit score can determine your ability to receive loans and credit, reasonable interest rates and insurance premiums.

Even prospective employers and landlords have the legal right to consult your credit history. And the uses of credit evaluation are continually expanding. With that kind of influence, this three-digit number should be “…as familiar to you as your home phone number” says Aleksandra Todorova, Senior Writer for SmartMoney.com. Curiously, however, access to this number is circumscribed by the powers that be.

Over a twelve month period, consumers are permitted, per request, one free copy of their credit report from each of the three credit bureaus: Experian, Equifax, and TransUnion. Do not be alluded by the bureaus’ generous disclosure, however. Your all-important credit score is missing from this report. “…your credit score is generated by information on your credit report, but is not part of the file itself,” the Equifax Web site explains. The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission, states that a credit reporting agency must disclose to consumers, upon their request, all information in their file with the exception of “…any information concerning credit scores or any other risk scores or predictors relating to the consumer.” The score, based on financial factors such as bill paying history; the number, type, and age of accounts maintained; collection actions; and outstanding debts, must be purchased by the consumer.

Consumers will likely receive a different number from each of the three credit agencies due to a lack of data sharing. Each uses their own version of the standard FICO method to determine scores, and, adding to the confusion, each calls the score by a different name. Equifax calls it Empirica, TransUnion uses the term Beacon, and Experian’s score goes by the name Experian/Fair, Isaac Risk Model.

A consumer’s access to their own credit report is decidedly limited, but many common incidents call for an inquiry into one’s report by outside institutions, often without their knowing. Anytime an inquiry is made, the credit score is potentially threatened. Inquiries are categorized as either hard or soft. Soft inquiries include actions such as: checking your own credit report, unsolicited credit card pre-approval mailings, a potential employer’s background check, or a bank’s verification of identity when opening an account. Soft inquiries do not affect your score and only stay on your report for six months. Hard inquiries on the other hand, will affect your score, usually by about five points. This type of inquiry will remain on your report for two years. Any incident in which a credit report and score are pulled in order to make a lending decision is considered a hard inquiry. Applying for a loan or credit card or even signing up for a new wireless service are examples of a hard pull and will knock points off your score.

Who is behind the many loopholes and barriers that constrict consumer access to such powerful and personal information? Who gains in this elusive game of cat and mouse? Fair Isaac Corporation – that’s who. Credit scoring is big business; headquartered in Minneapolis, Minnesota, Fair Isaac Corporation has become the unquestioned authority. In 1999 the FICO score was created by Fair Isaac as a predictive model of consumer financial behavior. The term FICO is now synonymous with “credit score,” so much so that in March of 2009 Fair Isaac embraced FICO as their official corporate title.

The secrecy surrounding the FICO score and its calculation suggests questionable motives and consumer advocates demand answers. The data in one’s credit file is as crucial as that in a medical file and contains similarly vital and classified information. The public ought to be clear on what is in their file and how it affects them. The public ought to be clear on their credit rating and how this three-digit number defines them in the eyes of potential lenders. And finally, the public ought to be clear on the formula used to produce this critical number.

Lamentably, Fair Isaac seems to disagree. With their covert operation in question, FICO spokesman Craig Watts explains, “[The scores] were not designed for consumers who have little experience in borrowing money and even less experience in understanding what makes or breaks a lender’s decision.” Enlighten us, prod consumer advocates. But Watts only rationalizes further, “…consumers learning about the score will be apt to make incorrect assumptions and, if the score is thought to be unsatisfactory, are apt to take action to quickly improve the score.” These hasty actions to improve one’s score, Fair Isaac explains, threaten the overall integrity of the model. Consumers aren’t intelligent enough to even comprehend the score, yet they are capable of cleverly manipulating an unsatisfactory rating?

Critics assert an alternative explanation to Fair Isaac’s murky management. Just as good ol’ Grandma Jean will take to the grave her coveted cherry crumb pie recipe, Fair Isaac intends to remain tight-lipped on its credit scoring recipe. Once the distinct ingredients and precise measurements are leaked, industry competitors could spoil Fair Isaac’s long-standing monopoly. In 2009, Fair Isaac generated $630.7 million in revenue; it’s no wonder they don’t want others to have a slice of the pie. In February of 2000, online lender E-Loan began offering consumers unrestricted access to their scores. The public responded amply; in the first month, nearly 14,000 consumers took advantage of this unprecedented offer. Desperate to maintain market dominance, Fair Isaac demanded that the contractually-obligated credit bureaus cease data-sharing with E-Loan. Though thwarted, E-Loan switched distributors and continued providing credit scores to the public. Undeterred by FICO’s resistance, E-Loan’s Senior Vice President Cameron King continued his crusade, taunting, “E-loan can hop between providers faster than Fair Isaac can keep up.”

Fair Isaac’s unfair reign over the credit rating industry can be no longer. Consumers must demand unrestricted access to their credit report and score. Online, we can closely monitor our children’s’ grades, our bank accounts, and our cell phone activity—anytime, anywhere. This constant monitoring allows us to clearly understand how that “B+” was tabulated, how the deposits and withdrawals equal our checking account balance, and how those excess text messages affected our dues. Why should we be denied the right to keep a watchful eye on the information that goes into our credit reports, and see plainly how it translates to our all-important credit score?