FICO credit scores will soon be available to some consumers for free but only if their lenders authorize it. The company announced recently it would start providing the scores used by lenders to determine whether and at what price to grant credit, to credit-card customers of Barclay Bank and First National Bank of Omaha.
Under the new program, called Open Access, consumers can see their credit scores as often as a participating lender allows it, yearly, quarterly, even monthly. FICO is marketing the program to lenders as a way "to build loyalty, trust, and growth, through greater customer transparency." According to the FICO website the program allows lenders to share previously purchased scores with its customers with no additional score fees. The company will also provide subscribers with an implementation plan and access to consumer educational materials. Other optional services available to lender subscribers are a 12-month historical trend score and the FICO Score Meter which indicates the strength of a customer's score. The company expects the new free scores could be available to 25 million customers by the end of the year.
FICO, formerly Fair Isaac Credit Organization, sells both credit scores and scoring software to lending institutions and in recent years has made scores available to individuals for a fee. The scores are currently available on the company website for $16.95 but there are subscriptions and other ways of obtaining the score at different price levels. Mellody Hobson, Executive Vice President of Ariel Investments said on CBS's This Morning on Tuesday that these consumer fees represent only 5 percent of FICO's income.
Credit scores are offered by other companies as well, principally the three major credit reporting bureaus TransUnion, Experian, and Equifax although FICO claims on its website to have a 90 percent market share. Each uses a proprietary formula to calculate a numerical expression of an individuals' credit characteristics including payment history, outstanding debt, available credit, and types of credit. The scores offered by the three bureaus are more consumer education- focused than tailored for lender use.
While FICO scores are designed to give lenders an indication of how likely an individual is to repay a debt the scores can also be helpful to consumers who can use them to determine whether an interest rate offered them reflects their credit worthiness. Since FICO scores include references to factors which may have negatively impacted a score, consumers can also plan how to most efficiently upgrade their ability to qualify for affordable credit.
For years the credit reporting bureaus made is extremely difficult for consumers to access their own credit history and most people had never heard of a credit score. Various moves by the Federal Trade Commission, financial regulatory agencies, and finally the Dodd-Frank Wall Street Reform and Consumer Protection Act increased transparency and required each reporting bureau to provide yearly free credit reports but scores, because of their proprietary nature were more difficult to get and then only at a fee. Under Open Access customers will still have to pay a fee if they go directly to FICO or the reporting bureaus but not if they are customers of a participating lender.
There has been no word from the other bureaus whether they will follow FICO's lead or continue charging for their scores which they aggressively market along with credit monitoring and identity fraud protection. Equifax has a temporary agreement with Wells Fargo Bank similar to that of Open Access but it is unclear if it will extend beyond this year.
Hobson said FICO is making this move to increase its brand identity in the face of competition from the bureaus. While Kleenex and Xerox have employed dozens of lawyers to prevent their brand names from becoming generic substitutes for "tissues" and "photocopying," she said FICO would very much like to make its name synonymous with "credit score."
