Fair Isaac, the creator of the well-known FICO score, has just received a green light from the court to continue its lawsuit against credit reporting agencies TransUnion and Experian for trademark infringement, but did not allow its allegations of antitrust and false advertising. Equifax was also originally named in the lawsuit, but reached a settlement with Fair Isaac last year.
Fair Isaac is asserting that TransUnion and Experian mislead consumers by selling them credit scores that pretend to be FICO scores, but are in fact not.
FICO score vs. “Educational” scores
Just as most of us refer to tissue as “Kleenex,” so do many consumers call their credit score a “FICO” score. But the truth is, FICO is just one brand of score. The, for instance, is another type of score created by the three credit bureaus in an attempt to compete with the popular FICO. Each credit bureau sells this proprietary score to consumers, sometimes along with or instead of a FICO score.
FICO claims that most lenders use the FICO score to evaluate borrowers, therefore it is the best score consumers can receive because it most closely approximates the number lenders are using to judge you. FICO considers other scores, such as the VantageScore, useful for “educational purposes” only. In other words, FICO asserts that other scores are good estimators, but not the real thing.
The truth is, though, that all consumer scores available on the market today (FICO or otherwise) aren’t going to be the exact number a lender is using to evaluate you. Lenders typically have their own scoring models that are unique to them. The only way to see the number a lender is using to evaluate you is to ask them for it either during or after the application process.
The lawsuit isn’t likely to result in serious damage to the business relationship between Fair Isaac and the credit bureaus. After all, they need each other. Fair Isaac depends on the bureaus for continued access to consumer credit history, and the bureaus want to keep supplying lenders and consumers with the Cadillac of credit scores.
The suit will hopefully force both parties to be more upfront with consumers, clearly explaining the various products and scores they’re selling. To date, I think the credit bureaus and FICO have been capitalizing on the confusion surrounding credit scores. Neither party offers a true understanding of the type of credit score being sold, how to purchase a specific credit score simply, and which credit bureau report a particular score is based on. This confusion often leads consumers to purchase the first product or package put under their nose, without realizing how closely or distantly it approximates the numbers that lenders are using.