That credit score information you just bought might not be what you think it is.
A recent action taken by the Consumer Finance Protection Bureau (CFPB) alleges Experian marketed the credit scores it sold to its customers as the same credit scores lenders see when evaluating applicants.
“Experian deceived consumers over how the credit scores it marketed and sold were used by lenders,” said CFPB Director Richard Cordray in a statement.
Experian – one of the “big three” credit reporting agencies – will now have to pay a $3 million fine.
The charges against Experian
The CFPB, established under The Dodd-Frank Wall Street Reform and Consumer Protection Act, ensures financial institutions uphold the regulations outlined in this act.
According to the CFPB, Experian and its subsidiaries have been:
- Selling credit scores under the pretense that they were the same credit scores lenders used in determining creditworthiness, which violates the Consumer Financial Protection Act of 2010.
- Showing consumers ads for its products before taking them to their free credit report through AnnualCreditReport.com, which violates the Fair Credit Reporting Act (FCRA).
Violating the Consumer Financial Protection Act
The credit score Experian sold was a model of its own called the “PLUS Score.” According to the CFPB, this is an educational score – a score that is used to help consumers estimate where they stand. Lenders rarely use educational scores when deciding to approve or deny an application for credit.
The main issue with consumers only seeing an educational score is that the credit score lenders see may be drastically different.
For consumers, that could result in issues such as applying for credit under the impression that their score is better than it is. And that could lead to potentially paying more in interest or even outright denial of their application.
Violating the Fair Credit Reporting Act
The Dodd-Frank Act mandates that credit reporting agencies provide a free annual credit report once per year through AnnualCreditReport.com. According to the CFPB, consumers had to view Experian advertisements before they could see their report.
Given all the confusion on what’s free and what’s not when it comes to credit scores and credit reports, this could have led many consumers to click on an ad that would redirect them to Experian’s website, where they might end up paying for something they were entitled to have at no cost.
The CFPB’s action to rectify these errors
As a result of these violations, the CFPB charged Experian a penalty of $3 million, which will go to the CFPB’s Civil Penalty Fund.
The CFPB now requires Experian to be transparent about the credit scores it sells. It also requires them to create a compliance management system to ensure violations like these don’t happen again.
In his statement, Director Cordray explained why actions like this are important. “Consumers deserve and should expect honest and accurate information about their credit scores, which are central to their financial lives.”
While the CFPB does its part to ensure consumers get accurate information, consumers have to be vigilant as well.
If you believe you’ve been a victim of deceptive practices by a financial institution, you can submit a complaint to the CFPB. Consumer complaints are essential in helping the CFPB uncover potential issues like Experian’s.
What you see vs. what lenders see
In the end, we all have many credit scores. And these scores all differ because:
- There are three different major credit reporting bureaus.
- There are two major types of credit scores.
- Lenders use different scoring models based on what they’re selling.
Educational credit scores can get a bad rap since they’re not the same scores that lenders use. But these scores can be helpful to you.
When you check your score, focus more on the range (i.e., “excellent,” “good,” “fair”) than on the precise number. That way you can see where you stand without fixating on a number that can change.
Your range can differ based on who’s checking your score, especially if you’re on the cusp of two different ranges. Still, what you’re looking for is a basic idea of where your score stands, not an exact match.
It’s important to remember you don’t have to pay for this. There are plenty of places you can check your educational credit score for free.
The score you see may not look at all like what lenders see, but that’s okay. When you see your educational score, focus on getting to the highest range rather than obsessing over the perfect number. Do that, and you should be in good shape to make sound decisions when you need to apply for and use credit.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|