CFPB to analyze Experian, Equifax, TransUnion data to get to bottom of credit score discrepancies

Introduction

The Consumer Financial Protection Bureau will analyze tens of thousands of consumer credit scores from major credit reporting agencies to get a clearer picture of why an individual’s credit score can vary widely.

In May, iWatch News reported how unregulated consumer credit bureaus use proprietary formulas to calculate credit scores that largely determine if a consumer can qualify for a mortgage, car loan or other major purchase, and how high the interest rate will be. Consumer advocates have complained that when a borrower and a lender each buy a credit score from the same company, they often receive different numbers.

The CFPB, in a report to Congress released today, reviewed the credit scoring industry in general and said it will take a more rigorous look at disparities in credit scores by analyzing 200,000 credit reports from each of the three biggest credit bureaus.

Equifax Inc., Experian Plc and TransUnion Corp. compile credit information about consumers and run the data through algorithms to produce credit scores. The numeric scores – often ranging from 300 to 850 – are used by mortgage lenders, auto dealers, insurance companies and others to determine credit rates and limits.

A multitude of algorithms exist to tailor the picture of the borrower to the kind of credit in question, so a consumer might receive an “educational score” that is different than a custom-weighted score provided to a credit card company, for example.

“The most substantial harm would likely result if, after purchasing a score, a consumer has a different impression of his or her creditworthiness than a lender would,” the report said.

In its next study, the CFPB said it “will quantify the differences between the credit scores available to consumers and those used by creditors. This follow-up study will provide more information about the potential for harm.”

No timeline has been set for when the credit agencies will produce the data or when the CFPB will complete its analysis.

.