I have diligently worked enhancing my credit rating for the last 3+ years. I did not attain my previous situation by the normal means (bad credit); so a brief explanation is necessitated.
In 2003 I left the USA for the South of Spain (the Spanish Med.) where I performed the research needed for my Masters’ and Doctorate Degrees. In 2014 I returned to the USA and while I had all the necessary things in Europe, (car, personal, and credit card loans for example); I did not have credit in the American sense. Europe (except for England) does not use credit reporting as we do in the States (know your customer laws prevail like in the 1950s/60s USA). Therefore, my credit did not get recorded. So when I returned I fundamentally had NO credit. Today I have built my status and by one standard am considered an 800+ “High Achiever” (the other scores are near 770). Having said that, I have discovered something that could be potentially libelous for FICO and/or the CRAs.
We all know that FICO is a statistical, risk analysis organization. They develop algorithms that utilize input from credit reporting agencies (CRAs). Furthermore, we know that the Big Three CRAs (EQ, TU, EX) supply these compilations to FICO; but they (the CRAs) receive the raw data from various lenders. The standard argument is achieved when FICO states they just input the data from the CRAs, while the CRAs argue they simply state what the individual lenders provide – the circle firing squad has assembled.
There is little we can do to augment this philosophy; however, my research has uncovered a flaw in the mutual deniability of these corporations. This may be due to the simple fact that the CRAs desire to impact the financial barriers matured by FICO. The CRAs have developed, and sell, their own risk algorithms. Many of us call them FAKOs because they have not been anointed by the Gods of FICO. It is imperative to remember that my premise has nothing to do with the scores developed by any organization; but by the common denominator to the situation – the credit report.
I have been purchasing my 3 in 1 FICO report for over a year and the last five months I have also purchased my EX and TU reports directly from the respective CRA. Once again, PLEASE REMEMBER THIS IS NOT ABOUT THE FICO/FAKO SCORE! I bought these to confirm my hypothesis and I was not only pleased with the results; but also shocked with the outcome.
Let me begin by mentioning five specific incidences that support my thesis. These events were initiated by me. The numbers are not exact, but you will get the sense. Keep in mind; one discrepancy is an input problem, two are a situation, three are serious, four must signal deliberate action, and five border on the realm of a conspiracy.
While the reporting date for each lender varies (as we all know), each creditor confirmed, via recorded telephone conversation, that they had conveyed to the CRA(s) my activity PRIOR TO the 1st of October 2017. I then pulled (and paid for) my reports from EX, TU, and FICO (extra reports prior to the scheduled time). Both EX and TU reported exactly what they should as of 10/1/17; however, FICO showed every balance wrong. FICO showed the balances as I reported them above on the earlier date; and thus, the conundrum liability.
If FICO gets the reports directly from the CRAs then only one of two possible situations exist.
In the first case, the CRA are not liable for they have no obligation to send the most up-to-date information to FICO. That is, unless they have a mutual contract to do so and thus would become liable. In the second case, FICO IS liable for as they say they are the industry leader at 90% utilization by lenders. They are thus, knowingly providing inaccurate information that affects the public. That is a financial crime under 18 U.S. Code § 1341, 18 U.S.C. § 1038, and 18 U.S.C. § 1001.
Thoughts, comments, corrections, lawyers (a.k.a. class action)?
“I'll gladly pay you Tuesday for a hamburger today.”
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The post asssumes that the CRAs transmit their data to Fair Isaac, and questions either the resulting CRA or Fair Isaac liability for the accuracy of the information in credit reports upon which scores are therafter calculated by Fair Isaac.
As I understand the process, data is not transferred by the CRAs to Fair Isaac. Rather, Fair Isaac license their algorithms to vendors who produce credit scores, such as the CRAs. Fair Isaac does not maintain a full database of CRA histories, and thus cannot produce a credit score on their own. They produce algorithms, and leave the actual score calculation to the holders of the data.
As for CRA liability of the accuracy of their reports, FCRA 607(b) specifies:
"Accuracy of report. Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates."
As they say, garbage in garbage out. All credit scores are accurate in that they are based on a snapshot of the available data at the time. CRAs just report what creditors provide them and if the info is not accurate, it's on us to dispute. if the creditors provide accurate info to the CRAs and they don't report it accurate, it's still up to us to dispute. I don't see any reason for us to go out and get lawyered up.
Marty56 you say, “As I understand the process, data is not transferred by the CRAs to Fair Isaac. Rather, Fair Isaac license their algorithms to vendors who produce credit scores, such as the CRAs.” I have some trepidation with this statement. The algorithms FICO develops are highly proprietary and thus a great corporate secret. If vendors were able to get ahold of these algorithms (via license or any other means) the secrecy (and controllability) of the software could be easily reverse engineered and stolen. I tend to agree more fully with the statement presented by the Rhodes Island Credit Union. “Because a consumer’s credit file may contain different information at each of the bureaus, FICO scores can vary depending on which bureau provides the information to FICO to generate the score.” https://www.ricreditunion.org/lending/understanding-fico-scores/
You also state, “Fair Isaac does not maintain a full database of CRA histories, and thus cannot produce a credit score on their own. They produce algorithms, and leave the actual score calculation to the holders of the data.” Well the holder of the data, by your own words, is the CRA and we are right back to my paragraph above. Nevertheless, I understand that FICO probably does not maintain a consumer database; however, they do get the information from the CRAs to generate the scores. Once they generate the score(s) the data probably goes into the cyber junk heap, but they did have it at one time.
I understand your reluctance to “go out and get lawyered up:” however, I personally never accept the “I’m just following orders” defense. “CRAs just report…[and]…creditors [just] provide…” fails the fundamental policy of innocent until proven guilty. Please follow my logic.
As you present, inaccuracies are “on us to dispute;” thus the error is assumed accurate by CRAs and lenders until disproven by us (the victims). I understand the situation; however, this fundamental premise is potentially devastating to the victim. For example, this forum has many posts where a lender does not report a credit card balance accurately. A victim may have paid the balance in full many months in the past, but the lender does not report the balance accurately (or timely) and the victim shows a high DTU that seriously affects his/her score. This error appears on all three CRAs so the victim, rightly, assumes the problem lies with the lender.
The consumer contacts the lender and informs them of the error. The lender now has two legal options. 1) Place a notice in the file that the consumer disputes a balance and, 2) take up to 30 days to “investigate.” There are many good forums on the net where individuals discuss the potential negative ramification of disputing an error in this situation. First, many argue the dispute is a trigger for other lenders to “soft” pull your report. This has had the result of having other lenders (as per their legal right) to either lower your credit limit and/or close your account based upon the low score being generated (and reported) by inaccurate information. Furthermore, the very lender doing the investigation has this same right even during the investigation process. Thus the victim suffers again due to the lower available credit and higher DTU it generates before the error is rectified.
Of course the standard argument is that once the CRAs have the accurate data they must (upon instruction from the victim) notify all lenders who saw the file; HOWEVER, the other lenders (those who lowered or closed credit) do not need to change their decision. Furthermore, while many lenders will address and review the issue, most (excluding AMEX) will require a hard pull of your updated credit report. We all know the negative factors that will cause.
Finally, I don’t understand how you support this statement after you presented the GIGO argument. “All credit scores are accurate in that they are based on a snapshot of the available data at the time.” If the available data is inaccurate (GI), then the scores/report are inaccurate (GO). CRAs, lenders, and FICO all use the legal arguments to their advantage. My suggestion was for the victims to investigate whether it is time for us to utilize the same legal system to our advantage or to politically force modification of the law.
I suggest the 2011 Report to Congress by the Consumer Financial Protection Bureau, titled “The Impact of Differences between Consumer and Creditor Purchased Credit Scores” for a detailed review of the credit scoring process conducted by the CFPB, including licensing of FICO algorithms to the CRAs.
Licensing of proprietary software to end users by software vendors is the etablished norm, and has both physical means to prevent reverse engineering of the software, and end-use licensing agreements to prevent misuse of the proprietary intellectual property licensed to the user.
Can't speak for others here but when I was denied credit, it was the correct action. Even if it was due to a reporting error, worst case I fix it and then look elsewhere or apply again. Imagine if there was not credit score and credit was given just by who you know, how much money you could bribe someone, other favors offered to them, your race, sex, whatever else you have or dont have. Also I believe that the credit score systems keeps the cost of credit down. Imagine having to pay $200 AF each year on each card for credit report insurance required by a new accurate reporting or else law. More often then not, the victims in the credit world are the lenders who don't get paid what they owe. It's their money and ours too since we invest directly or indirectly in many banks and companies.