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Fair Credit Reporting: 13.2.4.4 Payday Lenders

The CFPB has exclusive enforcement authority, relative to other federal agencies, over any person who “offers or provides to a consumer a payday loan.”26 In the context of FCRA enforcement, payday lenders are likely to be either furnishers or users.

Fair Credit Reporting: 13.2.4.5 “Larger Participants” in Consumer Financial Markets, Including CRAs

The CFPB has exclusive enforcement authority, relative to other federal agencies, over any person who “is a larger participant of a market for other consumer financial products or services, as defined by rule.”27 The Dodd-Frank Act required the CFPB to issue a rule defining such “larger participants.”28 The CFPB’s authority over CRAs depends on whether they meet the definition of “larger participant,” which includes the “Big Three” nationwide CRAs

Fair Credit Reporting: 16.4.3.2 Required Disclosure

A mortgage lender subject to this requirement must provide a disclosure similar to the generic credit score disclosure, i.e., a credit score, range of possible scores, associated key factors, etc.149 The lender must disclose either the score obtained from a CRA or a score developed and used by the lender.150 The FCRA does not set forth a specific timeframe for the disclosure to be made, but it must be made as soon as reasonably practicable.151

Fair Credit Reporting: 16.4.3.3 Enforcement of Right and Preemption

The lender is only liable for failure to make disclosures concerning mortgage score, not for the substance of the score or disclosures.160 Generally, FCRA claims must be brought within two years after discovery of the violation, but no later than five years after the violation;161 however, for the mortgage score disclosures, courts have held that the statutory period presumptively runs for two years from the date the loan transaction was consummated because, by that point, the borrower should kn

Fair Credit Reporting: 16.4.5.2 VantageScore; In-House Educational Scores

The Big Three nationwide CRAs collectively offer their own scoring product to lenders, called VantageScore.174 VantageScore has four generations of models.175 One difference with VantageScore is that the same scoring model is used by each of the three nationwide CRAs, so that a consumer will have the same score from each CRA if all of the data is the same.176

Fair Credit Reporting: 16.4.5.3 FICO Variations

FICO has numerous variations, with twenty-eight of them being commonly used by lenders.180 The variations are due to several factors. First, FICO offers has several generations of scoring models, including “classic” FICO, FICO 8, FICO 9, and FICO 10/10-T.

Fair Credit Reporting: 16.5.2.1.2 Payment history

This category includes information about late payments, defaults, collections, repossessions, bankruptcies, and judgments. This is the most important factor in a credit score. A single thirty-day late payment can lower a good credit score (e.g., 780) by 90 to 110 points.211 It can lower a mid-range credit score (e.g., 680) by 60 to 80 points, or well into the poor credit risk range.212

Fair Credit Reporting: 16.5.2.1.3 Amounts owed: credit utilization ratio

This category includes information on the amount owed by a consumer on each account as well as the total credit limit permitted for that account. Consumers are considered ideal if they have only utilized about ten to twenty percent of their available credit limit. The highest scores go to those who use on average a mere six percent of the credit available to them.235

Fair Credit Reporting: 16.5.2.1.4 Length of credit history

This category includes information on the age of a consumer’s accounts, including the age of the oldest account and an average age of all accounts. Generally, consumers with longer credit histories are seen as less risky. This category also considers the time that has elapsed since the last use of an account.

Fair Credit Reporting: 16.5.2.1.5 New credit

This category includes information about new accounts as well as inquiries by lenders for the consumer’s credit file. Evidence of opening several accounts in a short period of time is seen as an indicator of risk.245 Excessive inquiries will lower a credit score.

Fair Credit Reporting: 16.5.2.1.6 Types of credit in use

This category considers the mix of credit accounts that a consumer has. A good mix includes some credit cards, a mortgage loan, an installment loan and retail store cards. Given that a good mix includes a mortgage loan, it appears FICO’s scoring models favor homeowners over renters.251 Only the latest FICO model considers rental payments,252 and such payments are often not even reported to the nationwide CRAs.

Fair Credit Reporting: 16.5.2.2 FICO Scorecards

The guts of FICO scoring models are called “scorecards.”255 These are preset tables, with the factors listed on the left-hand side (e.g., number of recent inquiries) and attributes for each factor on the top row (e.g., 0, 1, 2). Each attribute is assigned a point value, which can be positive or negative, and the point values fill the cells in the scorecard. Points are developed based on a sample of previous borrowers whose creditworthiness (i.e., whether their loans were good or bad) is already known.

Fair Credit Reporting: 16.5.4 Ideas on How to Peek into the Black Box

Even with these revelations by the credit score industry, much of the “black box” nature of credit scoring systems still persists. Those seeking detailed information about how credit scores are calculated in general or for a specific person will be told initially that the actual process is a trade secret.

Fair Credit Reporting: 16.6.1 Industry’s Advice

Since they are based on consumer credit files that are constantly changing, credit scores will also change over time. Consumers can take steps to improve their credit score, although it may take time for some of their actions to be reflected in a new score. FICO gives the following advice on improving a credit score:270

Fair Credit Reporting: 16.6.2.1 Generally

There are other steps consumers can take themselves to attempt to improve their credit scores, or at least avoid the negative effect of a low score. However, some of these steps can be tricky or controversial.