The 42-page report, which you can find here, provides an analysis of different scoring models, comparing credit scores sold to creditors and those sold to consumers by the national credit reporting agencies, including Experian.

Of particular interest, and of reassurance to consumers, are some high-level conclusions from the report:

• “The CFPB found that for a majority of consumers the scores produced by different scoring models provided similar information about the relative creditworthiness of the consumers. That is, if a consumer had a good score from one scoring model the consumer likely had a good score on another model. For a substantial minority, however, different scoring models gave meaningfully different results.”

• “Correlations across the results of scoring models were high, generally over .90 (out of a possible one). Correlations were stronger among the models for consumers with scores below the median than for consumers with scores above the median.”

There are many details in the report, but Stuart Pratt, president and CEO of the Consumer Data Industry Association, provides a thoughtful analysis of the report in the CDIA’s public response:

We applaud the Consumer Financial Protection Bureau’s credit score report that was released today. We think it puts an end to the debate over the value of educational scores versus those scores lenders use.

The CFPB study concluded that ‘correlations across the results of the scoring models were high.’ As a result, it determined ‘that for a majority of consumers the scores produced by different scoring models provided similar information about the relative creditworthiness of the consumers. The study found that different scoring models would place consumers in the same credit-quality category 73-80% of the time.

The study sheds new light on why consumers can trust the credit score disclosures they receive and the products in the commercial marketplace that help consumers build a deeper understanding of their credit scores and how they affect their financial decisions.

Consumers want to be proactive in learning about their scores. Unfortunately, too many mixed messages have made them hesitant to access the data currently available that will help them better understand the scoring process.

This study is good news for consumers who can now be confident that the disclosures and services they are getting today are helping to empower them to receive better prices tomorrow in the credit market, according to Pratt.

The study was built on the foundation of two key facts made clear in the Bureau’s 2011 report and reiterated again in this study:

• Given this complexity it is unlikely that a consumer will often be able to know the exact score that a particular lender will use to evaluate them.

• Lenders use credit scores produced by many different scoring models.
  

The CFPB is right. No one score is used by all lenders. However, the credit score is a valuable educational tool and can enable consumers to better understand their creditworthiness relative to other consumers. As the CFPB’s report notes, the many credit score options in the marketplace today will help consumers answer these questions, Pratt concluded.

In its announcement, the CFPB also made two recommendations to consumers, which reflect what Experian frequently advocates to consumers who are working to improve their credit history and credit scores:

Shop around for credit.
Consumers benefit by shopping for credit. Regardless of the scores different lenders use, they may offer different loan terms because they operate different risk models or face different competitive pressures.Consumers should not rule out of seeking lower priced credit because of assumptions they make about their credit score. While some consumers are reluctant to shop for credit out of fear that they will harm their credit score, that negative impact may be overblown. Inquiries generally do not result in a large reduction in a consumer credit score.

Check the credit report for accuracy and dispute errors.
Credit scores are calculated based on information in a consumer’s credit file. Inaccurate information may be the difference between a consumer being approved or denied a loan. Before shopping for major credit items, the Bureau recommends that consumers review their credit files for inaccuracies. Each of the nationwide credit bureaus is required by law to provide credit reports for free to consumers who request them once every 12 months.

“Today, the CFPB announced a final rule addressing its role in supervising certain credit reporting agencies, including Experian and others that are large market participants in the industry.

During a field hearing in Detroit, CFPB Director Richard Cordray spoke about a new regulatory focus on the accuracy of the information received by the credit reporting companies, the role they play in assembling and maintaining that information, and the process available to consumers for correcting errors. We look forward to working with CFPB on these important priorities.

As we have stated before, Experian is no stranger to regulation – the FCRA was enacted over 40 years ago and has been aggressively enforced by the FTC. We already commit substantial resources to maintaining and improving accuracy and dispute handling. They are essential to consumers, our clients and to the value and equity we bring to our shareholders.

We are pleased that Director Cordray, in his comments today, took the time to point out the foundational importance of consumer credit information in facilitating consumer access to fair and affordable credit. He also acknowledged the critical role of credit reporting in consumers’ lives. We are confident that that further careful study by CFPB will confirm the high degree of accuracy achieved by credit reporting companies that operate in a highly complex environment.

Consumer participation in the credit reporting system is essential for ensuring accuracy of consumer reports. Consumers have a fundamental right to dispute information they believe is incorrect. Experian, along with the industry, has implemented effective solutions for consumers to dispute what they identify as errors in their credit reports through multiple channels with 24/7 availability, including phone, mail and internet.

This system includes trained consumer assistance professionals who help expedite disputes in a timely manner. Moreover, consumers have access to a free credit report online through AnnualCreditReport.com. Any errors identified in that free report can also be disputed by phone, mail and internet.

The consumer dispute system is an evolving and dynamic system, and we in fact have made many changes and improvements over the years. So we naturally welcome the opportunity to discuss reasonable ideas for improving the consumer dispute system with the CFPB.

Last – and important for consumers – Director Cordray noted that consumers need to be smart about how they manage their credit. We couldn’t agree more, which is why Experian was one of the first companies to create a substantial financial literacy outreach program called “Live Credit Smart,” where we offer tips and advice for consumers through online chats, blogs and community outreach efforts.”

- Tony Hadley, Senior Vice President of Government Affairs and Public Policy

The Consumer Financial Protection Bureau is coming up on its one year anniversary, and the questions still persist around what it means for credit reporting agencies and other providers of data to the financial services industry. One major focal point has been the agency’s “new” authority to supervise and examine large market participants, like Experian.

Experian, in fact, is no stranger to regulation. The Fair Credit Reporting Act was enacted in 1970, and for over four decades, the Federal Trade Commission has enforced the Act vigorously. Numerous and routine amendments to the FCRA have resulted in a dynamic regulatory environment – one that has brought certainty and benefits to consumers and the economy.

Today, consumers enjoy unparalleled access to fair and affordable credit, due in part to the existence of a robust, transparent and well regulated consumer credit reporting system. Consumers also benefit from maximum transparency of industry data collection and use practices, as well as wide ability to access data about them and correct errors they identify. Notably, consumers also have access to a free consumer report annually through Annualcreditreport.com.

So, as we engage with CFPB under the agency’s new supervisory authority, we envision a system that will continue to facilitate consumer access to fair and affordable credit. I believe both the CFPB and Experian share this most important and fundamental goal.

Meanwhile, Experian will continue to invest in the areas that help consumers, like our National Consumer Assistance Center and our financial education programs like “Live Credit Smart,” as well as our growing and important consumer products and services such as credit monitoring and identity protection, and our financial literacy services such as “credit educator.”

Experian is proud of the value we deliver to consumers, financial institutions and other businesses by enabling informed lending activities. We help companies and consumers make informed decisions so our economy can be strengthened. We remain committed to meeting consumers’ and clients’ needs within regulatory guidelines, while continuing to move our business forward.

- Tony Hadley, Senior Vice President of Government Affairs and Public Policy