You think you'd be the first to know if you had bad credit.
But Fair, Isaac, the company that controls consumer-credit information, didn't think you could handle it.
At least, not until now. After nearly a year of resisting pressure from the Federal Trade Commission and consumer advocate groups, who argued that consumers have a right to know their own credit ratings, the company that produces the widely used FICO credit scores will offer consumers nearly full disclosure on their credit standing.
Fair, Isaac on Friday announced a "strategic alliance" with Equifax, a company that supplies consumer credit information to lenders. It will offer consumers disclosure on their credit standing, including how it was calculated and how lenders might interpret it.
"We forged this alliance with Fair, Isaac to enlighten, enable and empower consumers to improve their credit health," said Equifax CEO Tom Chapman.
That's interesting, especially considering that Fair, Isaac's position not so long ago seemed to be that providing credit scores to consumers would be pointless since they wouldn't be able to decipher the information on their own. Last April, Craig Watts, consumer affairs manager of Fair, Isaac wrote, "Fair, Isaac's view is that consumers need additional information and individual counsel from a lender to truly understand their credit standing and how to improve it in the eyes of the lender."
Lenders are legally obligated to explain to credit applicants why they've been rejected for a loan. While they may disclose an applicant's credit score at that point, few will go out of their way to help consumers improve their credit standing.
But there is one lender out there who felt strongly enough about consumers' right to know their credit ratings that he stuck his neck out on their behalf.
E-Loan CEO Chris Larsen spearheaded the campaign against Fair, Isaac and Equifax after the companies colluded to stop supplying E-loan with consumer credit data. Before being cut off, E-loan had been allowing its users to check their credit ratings for free at its website.
"A smart consumer is a better economic player and a better citizen," said Larsen. "In our opinion this kind of better disclosure of information actually grows the market for lenders and the economy as a whole. If consumers can better manage their debt, they have more control over their net worth and how they invest it."
Reacting to the partnership announcement by Fair, Isaac, Larsen said, "It's definitely a step in the right direction. But as of today, American consumers are still not able to access their own credit information. When you see announcements like this one -- before the company has taken any real action -- you have to wonder about the follow-through."
But according to Watts, E-Loan's campaign against Fair, Isaac has been self-serving. "They've had a very specific agenda to manipulate the press to give E-Loan more publicity, but they haven't done anything that specifically helps consumers."
Watts also said that Fair, Isaac has agreed all along that consumers deserve to know their credit scores, but that disclosing credit scores alone -- without an explanation of how it was calculated and how to improve it -- won't help anyone.
"The only point where there's been disagreement is the speed at which they've been disclosed," Watts said. The delay, apparently, was finding a credit-data distributor (Equifax is one of three major distributors nationally) that would partner with Fair, Isaac to make the information available to consumers.
The initiative to enlighten consumers has strong bipartisan support. California is a step ahead in the game, having already passed a law requiring credit reporting agencies like Equifax to give consumers full disclosure, which will go into effect in June.
Once Californians are able to take advantage of the new law, it'll be hard to keep the rest of the country in the dark, said Larsen.
Indeed, thanks to pressure from Larsen and others, consumers will soon be able to take control of their credit ratings and make sure they're not being cheated. And typically, the big, bad companies that stood in their way in the first place can take all the credit for it.
