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State Legislatures Magazine: June 2001

Editor's Note: This article appeared in the June 2001 issue of NCSL's magazine, State Legislatures. To order copies or to subscribe, contact the marketing department at (303) 364-7700.

Secret Credit Scores May Soon Be Revealed

Bought a home or a car lately? Applied for insurance or a credit card? Chances are your approval or denial was based on your credit score. But chances are greater that you don't know what your score is. And this concerns some state legislators.

Information, such as payment history, the number and type of accounts you have, late payments, collection actions, outstanding debt and the age of your accounts, is collected from your credit application and your credit report.

Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles.

A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. The resulting credit score, ranging from 300 to 900 points, helps predict how credit-worthy you are-that is, how likely it is that you will repay a loan and make the payments when due.

Until recently, credit scores were kept confidential. Few consumers knew that these scores were included on most credit reports, and even fewer saw them. Credit bureaus that license the software for generating these scores agreed not to share scores with individual consumers, and banks also are not obligated to disclose them. But that may change.

During the last five years, at least 13 states have considered bills related to credit scoring. Many of these would require lenders to disclose and explain credit scores to consumers, and others would prevent the denial of insurance for homes or automobiles on the basis of a low credit score. Similar bills are also being considered on the federal level.

California recently passed legislation giving consumers access to their credit scores. The legislation requires lenders to provide consumers with their specific credit score, the key reasons that a consumer's score was not better and the factors that determined that score.

It also allows consumers to receive a copy of their credit scores from their credit file for a small fee.

"California now has the most consumer-friendly law involving credit disclosure in America," said Senator Liz Figueroa, author of the legislation. "Since your credit score is affected by more than whether you have paid your bills, consumers need to know their score and the reasons behind it. For the first time, California consumers will now have that right."

For additional information on credit score legislation, please contact Kelly Anders at (303) 364-7700, or by email at kelly.anders@ncsl.org.

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