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Angry about the credit scoring system? Here's what to do

In July, a new consumer watchdog will be ready to handle complaints

By

Credit Score Report
Reporter Jeremy M. Simon
Jeremy M. Simon is a former staff reporter for CreditCards.com who covered credit reporting and scoring issues.

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Question for the CreditCards.com expert

Dear Credit Score Report,
You (and others) warn us that if we choose to cancel a credit card, it will have a negative effect on our credit score. This seems unfair and arbitrary. What can we -- as consumers and activists -- do to change this practice by the rating firms? To whom should we write and request this be changed? -- Linda

Answer for the CreditCards.com expert

Hey Linda,
You're not the only person voicing complaints about credit scores. But the good news is consumers like yourself will soon have a powerful new ally -- the government's Consumer Financial Protection Bureau -- to enlist for help. Just don't expect an overnight miracle.   

Although the credit scoring process has become more transparent in recent years, some critics still complain about an enigmatic system established by private companies that largely determines U.S. consumers' ability to borrow money. The government has taken note: As part of the massive Wall Street reform bill that President Obama signed into law last July, the federal Consumer Financial Protection Bureau (CFPB) was created as an independent watchdog agency to monitor consumer lending and financial products. "The CFPB is the greatest hope for consumers in a long time, and that includes consumers concerned about credit scores," says Ed Mierzwinski, consumer program director for U.S. PIRG, a federation of state Public Interest Research Groups. You'll need to be patient, since the bureau won't be fully operational until July 2011, but that doesn't mean you have to sit idly by in the meantime.

I shared your concerns with FICO, creator of the leading U.S. credit scoring model, which recommended you visit its website, myFICO.com, and public discussion boards, the FICO Forums. "We encourage anyone with questions or issues about FICO scoring to visit those two destinations," says FICO spokesman Craig Watts.

Given the complexity of the system and its importance to your finances, it's crucial to learn about credit scoring, even if you don't like it. After all, it's a system you are thrust into when you borrow money -- and it isn't going away. "Credit scoring, like it or not, is here to stay," says Evan Hendricks, author and publisher of the "Privacy Times" newsletter. More education may not ease your concerns, however, since even industry experts like Hendricks acknowledge that despite being predictive of credit risk, some aspects of credit scoring models can be counter-intuitive.    

So what can you do about it? "Right now, the most important thing consumers concerned about credit report and score use and abuse can do is write Congress and urge them not to cut the funding for, or otherwise attack, the new CFPB," says U.S. PIRG's Mierzwinski. (The U.S. House of Representatives website can help you identify your specific congressman.) Hendricks recommends writing a letter that explains your specific complaint or that asks that the bureau evaluate the issue of credit scoring overall. "There's a new kid on the block, and it's the first time that someone has that kind of authority that could theoretically extend to this issue," Hendricks says of the CFPB.  

There's reason to believe your letter will be taken seriously. Growing consumer interest in credit scores has spurred lawmakers to scrutinize the system -- to the benefit of borrowers. In other words, you've got momentum on your side. "Every time members of Congress have taken an interest in this issue, they make the rule stronger for consumers," says Hendricks. That includes the millions of free credit scores made available to borrowers who get approved for credit at less-than-ideal terms, thanks to Federal Reserve and Federal Trade Commmission rules that took effect Jan. 1, 2011, as a delayed result of the Fair and Accurate Credit Transactions (FACT) Act of 2003. 

Of course, the CFPB is likely to have its hands full and will likely face industry opposition to any proposed changes, so don't get your hopes up about an overnight change in the way credit scoring models treat borrowers.

Good luck!

--Jeremy 

See related: Consumer financial protections at least a year away, Free credit scores become more available to borrowers

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Published: March 8, 2011


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