The Consumer Financial Protection Bureau released a study this week that revealed that one out of five American consumers would likely see a “meaningfully” different score on their credit reports than the score seen by lenders.
“This study highlights the complexities consumers face in the credit scoring market,” Richard Cordray, the director of the CFPB, said. “When consumers buy a credit score, they should be aware that a lender may be using a very different score in making a credit decision.”
A meaningful difference means that the consumer may be eligible for certain credit offers than expected based on the score they purchased. The study revealed that these discrepancies may harm the consumer.
“When discrepancies exist between the scores consumers purchase and the scores used for decision-making by lenders in the marketplace, consumers may take action that does not benefit them,” the study found. “For example, consumers who have reviewed their own score may expect a certain price from a lender and may waste time and effort applying for loans they are not qualified for or may accept offers that are worse than they could get.”
The study also found that consumers cannot rely on their score to estimate how lenders will view their creditworthiness.
The CFPB recommends that American consumers shop around for credit because different lenders may offer different loan terms due to variations in risk models and competitive pressures.
Some consumers are reluctant to shop around for credit under the assumption that multiple inquiries will damage their credit scores. The CFPB said, however, that inquiries “generally do not result in a large reduction in a consumer credit score.”
The CFPB further recommends that consumers review their credit histories to check for inaccuracies before applying for credit.
The agency will begin monitoring approximately 30 consumer credit reporting firms on Sept. 30 to verify that these firms are complying with federal consumer financial laws, providing accurate report information, handling report disputes, supplying disclosures to consumers and preventing fraud and identity theft.