After years of inaction and neglect, Washington has finally gotten serious about protecting people from abusive credit card practices. Consider:
- President Barack Obama summoned credit card executives to the White House in April and signaled that credit card reform was on his agenda.
- Within weeks, Congress passed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act. Obama signed the measure into law May 22.
- The first phase of the legislation when into effect in August; further regulations roll out in February and June 2010.
These reforms are long overdue. But all sides are missing a golden opportunity to protect people from abusive credit bureau practices, specifically the bureaus' ability to cut off our access to our own FICO credit scores.
In February, I wrote about how Experian suddenly had decided not to sell FICO scores to consumers anymore, although it continues to sell the scores to lenders. That decision, which has yet to be challenged by regulators or lawmakers, conceals from consumers a vital piece of their credit information.
You no longer have any idea, before you apply for a mortgage, what kind of interest rate to expect. That's because most mortgage lenders use the middle of your three credit bureau FICO scores to determine rates and terms. Without access to all three FICOs, you can't know what your middle score might be.
You're also at a disadvantage if you are dealing with a lender that subscribes to only one bureau and you live in the western half of the U.S. Lenders that use just one bureau tend to use the one that specializes in their region: for Experian, it's the West and Midwest; Equifax dominates the South and TransUnion the Northeast.
And it's simply unfair that information gathered specifically about you and used for profit is unavailable to you, yet can affect so many corners of your life.
Without a FICO, you're running blindYou can still buy a credit score from Experian; it just won't be the FICO score that most lenders employ. Instead, you'll be sold Experian's in-house "consumer education score," which isn't used by lenders, or a VantageScore, which doesn't even use the same scale as the FICO. (The classic FICO ranges from 300 to 850, while the VantageScore runs from 501 to 990.)
Experian is taking advantage of a loophole in federal law that ensures your access to credit scores but fails to specify which credit scores you should get. The Fair and Accurate Credit Transactions Act effectively pretends that all credit scores are the same, when nothing could be further from the truth.
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And let me be clear: Knowing your FICO scores has never been more important than it is today. People with high FICO scores (generally, 740 and above) still have access to phenomenally cheap credit, including historically low mortgage rates, inexpensive auto loans and superior credit cards with rich rewards.
If their credit card companies raise their rates or lower their credit limits -- widespread practices recently -- these good-credit folks can effectively fight back by threatening to take their business elsewhere.
People who don't know their FICOs are at a distinct disadvantage. They don't know how they're viewed by lenders, so they don't know if they're being quoted appropriate rates or if they have leverage to get a better deal.