| Comment Number: | 514719-00044 |
| Received: | 3/23/2005 3:10:59 AM |
| Organization: | CRC Financial |
| Commenter: | Alberto Montes |
| State: | FL |
| Agency: | Federal Trade Commission |
| Rule: | Notice of Proposed Study on the Effects of Credit Scores and Credit-based Insurance Scores on the Availability and Affordability of Financial Products |
| Docket ID: | 3084-AA94 |
| No Attachments |
Comments:
We know that the credit score (specifically the FICO version) uses five main factors in its calculation of credit worthiness, or credit risk. The second most important of these factors is the current balance of revolving accounts as it relates to credit limits (this is accepted knowledge and can be found on FICO's website). It is therefore imperitive that creditors which provide information to the bureaus report the credit limits of accounts. A number of creditors, by way of their own company policy, (primarily Capital One) do not report account credit limits. In it's place they report the consumers high credit as if it was the credit limit. Because this will cause the credit score to be lower in many cases, it is actually believed that this is done in order to hide the companies best customers from potential competitors that may send credit card offers after purchasing lists of customers with a pre-screened target credit score. According to FICO, 80% of all credit decisions are made with the use of their score. Creditors must be required to report correct credit card limits to the credit bureaus or this factor should be removed from the scoring formula when not present. Additionally, in order to save money, some creditors choose to report to the bureaus quarterly as opposed to monthly. Since a consumers revolving account balances may change substantially during a 3 month period, if a credit score is calculated using balance history that is potentially up to 90 days old, it will obviously not be a proper calculation of risk. Since 90 day old information should not be considered current anyway, creditors should be required to update to the bureaus monthly, not quarterly. Also, payment history is key to determining a proper credit risk score. The effects of late payments vary with a number of inter-related factors, including the recentness of the late payment. TransUnion routinly leaves out this peace of information. By way of example, they may report an account with a history that reads "In previous 24 months account past due 2 times 30 days, however they do not report what month the late payment occured. In this case the scoring model can not accurately calculate a risk score. It is therefore also very important that TransUnion report dates associated with the late payment history or another remedy must be sought. Lastly, when a credit score is used in connection with any adverse credit action, the credit score should also be provided to the consumer who was subject to that adverse action free of charge. Please feel free to contact me. Sincerely, Alberto Montes