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Is a purchased credit score similar to what lenders see?

Ohio consumers remain concerned about their credit score. Owning a home, buying a car and getting a good rate on a credit card can be affected by what the credit reporting companies tell lenders about an individual's credit history. Many companies offer credit monitoring services and even sell credit scores to consumers. Credit report and credit monitoring services, offered for a fee are not about restoring credit, but more about providing a snapshot of what a credit score may look like at a given point in time.

The media is filled with advertisements concerning consumer credit scores. One company reportedly brings in around $700 million in revenue selling monitoring services and a credit score. However, it remains unclear what the credit score actually means.

Fair Isaac Company developed a credit score known as the FICO score. In the credit industry the FICO score is the gold standard. Most lenders rely in FICO scores when making credit decisions. However, the formula is proprietary, and therefore consumers who buy a credit score are usually purchasing a different score that lenders never see. While the industry selling the scores likes to characterize the product as educational scores, some critics like to call them "fako" scores.

Critics of the educational scores say it is not clear what the scores measure. Some experts say the scores can vary by 100 to 150 points. One company marketing the scores reportedly has said they have a couple PhDs on staff who developed an algorithm based upon what they believe lenders are looking for. The score the company markets may or may not reflect what the FICO score tells lenders.

The Consumer Financial Protection Bureau, a new federal agency, is slated to open its doors in July. The agency is expected to dive into the issue of the sales of educational credit scores. Congress has asked the agency to investigate the differences between FICO scores and educational scores sold in the consumer market. The agency is also expected to evaluate whether debt-protection products related to credit cards provide consumers with any value.

Debt-protection services are aggressively marketed to consumers. The General Accounting Office recently reported on the services. Debt-protection products offer to pay your bills if you lose your job or become ill. The products are marketed to protect credit scores and some say to help people to avoid falling into financial distress.

The fees can be as high as 10 percent of the average monthly balance on a credit card. The GAO says consumers receive roughly 21 cents of benefit for every $1 spent on the program. Consumers buried under a mountain of credit card debt may want to consider bankruptcy relief. An experienced Cincinnati bankruptcy attorney can answer questions about the various forms of bankruptcy protection that may be available under particular circumstances.

Source: Wall Street Journal, "Beware the Financial Fear Mongers," Karen Blumenthal 23 Apr 2011

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