MARCH 2004

Does Knowledge of Credit Score Change Consumer Behavior?

For many years, consumer advocates pressed credit bureaus and risk scorecard vendors to reveal credit scores to consumers. Responding to growing pressure from outside, and a strategic re-thinking of business opportunities inside, Fair Isaac launched just such a product in 2001 with its myFICO.com website. Recently, the company revealed some intriguing research results regarding the credit performance of consumers who have visited the site to get their credit scores.

The myFICO.com website provides consumers with their credit score as well as information about the components of a FICO score and the relative importance of different factors. Consumers learn where they fall in the overall risk distribution, generally the types of credit usage behavior that will improve or damage their FICO score, and, most recently, an indication of the range of interest rates for which someone with their score would qualify.

In conducting research on the subsequent performance of myFICO.com customers, Fair Isaac wanted to determine of visiting the site "triggered a sustained improvement in repayment risk." Results from a tracking study found that myFICO customers had a more significant positive shift in their FICO risk scores over time relative to similarly situated consumers who did not visit the site. It also found that myFICO customers were:

• Less likely to have delinquencies—they experienced a short-term decrease in delinquency, and did not have longer term increases experienced by other consumers
• More likely to open new credit lines—perhaps not surprisingly, given that they may have visited the myFICO site to find out their score in advance of applying for a loan
• Likely to have higher revolving balances
• Less likely to close or consolidate credit

The company took a closer look at customers who scored just below 680 prior to visiting the site, and above 680 immediately after visiting the site, to see if the increase was sustained over an extended period of several months. It that, following the jump in scores, the myFICO visitors did not score substantially different over the longer term than consumers who did not visit the site. Roughly 70% stayed above the 680 level. But, the company reported that "while the level of risk was similar, the myFICO population had less delinquency and higher balances and activity. Consequently, the myFICO visitors had greater revenue potential for creditors as compared to non-visitors of similar overall risk.

Scott Mitic, VP at myFICO, said "this research has shown that when consumers learn to manage their credit more responsibly over time, not only will they eventually qualify for more credit at better rates, but lenders who offer myFICO services will have a marketing edge with a profitable set of consumers who are more likely to be seeking credit."