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Experian Fined for Deceiving Consumers about Credit Scores

The Consumer Financial Protection Bureau fined credit agency Experian $3 million last week. Let’s take a look at why Experian was fined and what consumers can learn about their credit scores from this.

CFPB Takes Action Against Experian

The Consumer Financial Protection Bureau (CFPB) took action against Experian last Thursday. The CFPB found that Experian’s advertising falsely represented the credit scores it provided to consumers. This happened from at least 2012 through 2014. That’s a direct violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Experian told consumers the credit scores it sold and marketed were used by lenders to make credit decisions. The score they sell is their own model, known as the “PLUS Score.” In reality, lenders do not use the PLUS Score when sizing up an applicant.

The PLUS Score and others like it are what the CFPB refers to as “educational credit scores.” These alternative credit ratings are rarely, if ever, used by lenders. Instead, they are designed to inform consumers about factors that comprise their credit.

In fact, in many instances, the CFPB found there was a big difference between a consumer’s PLUS Score and the various credit scores (typically FICO) that lenders actually use.

Experian was also in violation of the Fair Credit Reporting Act. That law requires credit agencies to provide a free credit report every 12 months through annualcreditreport.com. Up until March 2014, consumers who accessed their Experian report through the website had to view advertisements beforehand, which is prohibited under the Act.

So, the CFPB took action. As restitution, Experian has to:

  • Pay a $3 million civil penalty.
  • Truthfully represent the usefulness of credit ratings it sells.
  • Establish and implement a compliant advertising strategy.

In January of this year, the CFPB took action against the other two national credit bureaus — Equifax and TransUnion — for similar issues. Those two also advertised that the credit scores they sold where the ones used in credit decisions when they almost always were not.

What We Can Learn From This

There’s a lot of confusion surrounding credit scores. Instances like this only seem to make it more complicated for many consumers. However, a key takeaway we can learn from this is this simple fact: you have many different credit scores.

Several companies have developed their own credit scoring models over the years. The PLUS Score that Experian sells is just one example. And you need to remember that your credit rating is going to vary from model to model.

So, how do you know which credit score is the real deal? While no single credit score or scoring model is used by every lender, the great majority of them deal with the FICO score when making credit decisions.

Therefore, the FICO score is the most important one to pay attention to. This is especially true if you are about to apply for a loan or line of credit. Five main factors go into the calculation of your FICO score, and each is weighted differently.

Here is how the FICO score is calculated, and what percentage that factor accounts for:

  • Payment History: 35%
  • Amounts Owed: 30%
  • Length of Your Credit History: 15%
  • Mix of Credit Accounts: 10%
  • Amount of New Credit You’ve Applied For: 10%

The Bottom Line

Your credit score is a big part of your financial life. Just make sure you understand that you have several different credit scores, and the FICO model is the one that most lenders are going to use when evaluating you as an applicant.

If your credit is keeping you from getting approved for an auto loan, SLG Progressive + Commercial Insurance Agency is here to help. We help consumers get connected to a local car dealership that is trained in special finance. See what we can do for you by filling out our free, easy and no-obligation auto loan request today.

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