Wednesday, July 29, 2009

The Latest on FICO’s Lawsuit and What it Means to Consumers

Earlier today the Wall Street Journal posted a new story on Fair Isaac, or as they refer to the company, the “keepers of your credit history.” For those of you who may not know, Fair Isaac maintains the FICO scores most lenders use to determine your eligibility for a loan and potential interest rates. The lawsuit surrounds the difference between what the company calls bono fide FICO scores, and non-FICO scores, sometimes called “FAKO” scores. Check out the following article on the development courtesy of the Wall Street Journal.

In a suit filed in October 2006, FICO alleged that Experian and TransUnion deliberately marketed VantageScore to customers as the bona fide FICO score, when they are actually purchasing access to Experian or TransUnion’s proprietary score.

There’s argument over how credit scoring played into the current financial crisis, but there’s little argument that credit scores have become a fundamental part of our consumer economy in the past decade. The FICO score is comprised of information submitted by all three major credit-reporting agencies, Experian, TransUnion and Equifax.

However, all three agencies sell additional products, like credit monitoring services and their own scores. Although some consumers like seeing these separate scores, these scores aren’t what most lenders consult when deciding whether to extend credit. Sometimes, these scores can be very different from a FICO score — which FICO says causes confusion and error should a consumer apply for a loan.

“There’s been some confusion in the marketplace,” said FICO CEO Mark Greene. (Anyone who has seen one of those ads knows this.) Credit score ads online have proven particularly problematic, he says.

It poses a company challenge for FICO, which has to work with credit reporting agencies Experian and TransUnion to gather information from credit reports to formulate its scores.

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