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44–906 PDF 2008

WHAT BORROWERS NEED TO 

KNOW ABOUT CREDIT SCORING 

MODELS AND CREDIT SCORES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JULY 29, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–133 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

DON CAZAYOUX, Louisiana 

TRAVIS CHILDERS, Mississippi 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

MELVIN L. WATT, North Carolina, Chairman 

LUIS V. GUTIERREZ, Illinois 

MAXINE WATERS, California 

STEPHEN F. LYNCH, Massachusetts 

EMANUEL CLEAVER, Missouri 

MICHAEL E. CAPUANO, Massachusetts 

AL GREEN, Texas 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ED PERLMUTTER, Colorado 

JACKIE SPEIER, California 

GARY G. MILLER, California 

PATRICK T. MCHENRY, North Carolina 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

J. GRESHAM BARRETT, South Carolina 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KEVIN McCARTHY, California 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 29, 2008 ..................................................................................................... 1 

Appendix: 

July 29, 2008 ..................................................................................................... 57 

WITNESSES 

TUESDAY, JULY 29, 2008 

Abrahams, Clark, Chief Financial Architect, SAS Institute, Inc. ....................... 36 

Goerss, Richard G., Chief Privacy Officer and Regulatory Counsel, Equifax, 

Inc. ......................................................................................................................... 11 

Hendricks, Evan, Publisher and Editor, Privacy Times ....................................... 41 

Oliai, Stan, Senior Vice President, Experian Decision Analytics, Experian 

PLC ........................................................................................................................ 9 

Quinn, Thomas J., Vice President, Fair Isaac Corporation ................................. 7 

Staten, Dr. Michael, Professor, University of Arizona ......................................... 37 

Turner, Dr. Michael, President and Senior Scholar, Political and Economic 

Research Council (PERC) .................................................................................... 39 

Wiermanski, Chet, Group Vice President, Global Analytical and Decision 

Systems, TransUnion LLC .................................................................................. 13 

APPENDIX 

Prepared statements: 

Abrahams, Clark .............................................................................................. 58 

Goerss, Richard G. ............................................................................................ 82 

Hendricks, Evan ............................................................................................... 119 

Oliai, Stan ......................................................................................................... 126 

Quinn, Thomas J. ............................................................................................. 136 

Staten, Dr. Michael .......................................................................................... 140 

Turner, Dr. Michael ......................................................................................... 153 

Wiermanski, Chet ............................................................................................. 173 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Watt, Hon. Melvin L.: 

Letter to Federal Reserve Chairman Ben Bernanke from Chairman Watt, 

dated July 24, 2008 ....................................................................................... 184 

Letter to Federal Trade Commission Chairman William Kovacic from 

Chairman Watt, dated July 24, 2008 .......................................................... 185 

Letter to Mr. Jack Forestell, Capital One, from Chairman Watt, dated 

July 24, 2008 ................................................................................................. 186 

Written statement of Jack Forestell, Capital One ......................................... 188 

Response letter from Federal Trade Commission Chairman William 

Kovacic, dated July 28, 2008 ........................................................................ 195 

Written statement of Sandra F. Braunstein, Board of Governors of the 

Federal Reserve System ............................................................................... 203 

Consumer Federation of America press release, dated July 10, 2008 ......... 217 

Written statement of Payment Reporting Builds Credit .............................. 222 

Responses to questions submitted to Clark Abrahams ................................. 231 

Responses to questions submitted to Richard Goerss ................................... 235 

Responses to questions submitted to Stan Oliai ............................................ 242 

Responses to questions submitted to Thomas J. Quinn ................................ 251 

(1) 

WHAT BORROWERS NEED TO 

KNOW ABOUT CREDIT SCORING 

MODELS AND CREDIT SCORES 

Tuesday, July 29, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2 p.m., in room 

2128, Rayburn House Office Building, Hon. Melvin L. Watt [chairman of the subcommittee] presiding. 

Members present: Representatives Watt, Cleaver, Green, Speier; 

Royce, and Barrett. 

Chairman WATT. This hearing of the Oversight and Investigations Subcommittee of the Financial Services Committee will come 

to order. Without objection, all members’ opening statements will 

be made a part of the record, and I will recognize those who wish 

to make an opening statement in order of seniority. I will now recognize myself for 5 minutes for an opening statement to kind of 

frame what we are here about. 

I welcome all of you here. Credit reports and credit scores have 

become important instruments in evaluating whether to extend 

credit to borrowers. Surveys taken by the Consumer Federation of 

America indicate that most individuals do not understand credit 

scores even when they think they are knowledgeable about credit. 

Perhaps I am the best example of that. I probably know more 

about credit reports and credit scores today than I ever have before 

because, for the first time ever in my entire life, in preparation for 

this hearing, I actually got a copy of my credit report and my credit 

score; and even tried to get three of them, but I didn’t have enough 

information to get into the machine to do all of that. 

As the economy has slowed and credit is becoming harder to get, 

it has become even more important for consumers to understand 

credit reports, credit scores, and what it takes to improve them. 

Today’s hearing will focus on credit scores and credit scoring 

models, consumer access to credit scores, and proposals to use alternative data in assessing the creditworthiness of consumers. We 

are fortunate to have with us today representatives of all three of 

the nationwide credit reporting agencies, Experian, Equifax, and 

TransUnion, as well as a representative of Fair Isaac Corporation, 

which is widely credited with developing the first credit scoring 

model that became widely used in evaluating credit. These witVerDate Aug 31 2005 15:29 Nov 19, 2008 Jkt 044906 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\44906.TXT TERRIE
2 

nesses are very knowledgeable and will help us to understand the 

process by which credit scores are calculated. 

While we do not have a user of credit scores with us today, we 

do have a written statement from Capital One, one of the largest 

users of credit scores, explaining how they use both external and 

internally developed credit scores. Including this information in the 

hearing record will assist us in understanding how credit scores 

are developed and how they are evaluated by lenders when making 

credit decisions. 

So I ask unanimous consent to insert the written statement of 

Capital One into today’s hearing record at this point. Without objection, it is so ordered. 

We will also explore at today’s hearing the use of so-called ‘‘alternative credit data,’’ such as rent and utility payments, in evaluating an individual’s creditworthiness. This issue has a particular 

importance to individuals who have little or no credit history, commonly referred to as consumers with what are called ‘‘thin files.’’ 

Some believe that increased reporting and consideration of this 

type of data could help to improve access to credit by consumers, 

especially those with thin files or those who have no payment histories currently being collected by the credit reporting agencies. 

Others have raised concerns, however, about the collection and 

use of alternative credit data in evaluating an individual’s creditworthiness. Concerns about accuracy, volume, and verifiability of 

this information have been raised by some people about alternative 

data. 

We look forward to hearing more about this issue from our witnesses; and that is a segment of our hearing, which I hope those 

who raised it and wanted me to include it as part of the hearing 

will show up to talk about. 

In addition to the written statement I have submitted for the 

record from Capital One, I also request unanimous consent to submit written statements from the Federal Trade Commission and 

Payment Reporting Builds Credit. We have requested a written 

statement from the Federal Reserve, and we will submit that for 

the record when we receive it, although it is not here today. 

The Equal Credit Opportunity Act provides that a creditor may 

consider age in a credit scoring model as long as it is not assigned 

a negative value and is empirically derived and statistically sound 

in accordance with the Federal Reserve Board’s regulations. And 

that is what we expect the Federal Reserve’s written statement to 

explain, how they have been implementing this requirement. 

The Federal Trade Commission, under the Fair and Accurate 

Credit Transactions Act, is charged with establishing the fair and 

reasonable fee that consumer reporting agencies may charge for 

disclosure of a consumer’s credit score and their written statement, 

and the FCC’s written statement explains how they have implemented this requirement. Payment Reporting Builds Credit, a consumer reporting agency that allows consumers to enroll and selfreport on-time alternative credit information has also submitted a 

written statement describing their unique process. And without objection, I would submit for the record the FTC’s statement and the 

statement of Payment Reporting Builds Credit. It is so ordered. 

3 

I thank all of our witnesses for being here today and look forward to an informative and useful hearing. And with that, I will 

recognize the gentleman from South Carolina, Mr. Barrett, who is 

substituting for our ranking member, who couldn’t be with us 

today. You are recognized for 5 minutes. 

Mr. BARRETT. Thank you, Mr. Chairman. I appreciate it. 

Gentlemen, thank you for coming today. 

Mr. Chairman, I want to thank you for holding this timely hearing on what borrowers need to know about credit scoring models 

and credit scores. Given the influence of credit scores on the financial lives of Americans, this hearing is appropriate and much needed. 

Credit scores are not just numbers. The scores affect many parts 

of Americans’ lives, including the terms and rates of their credit 

cards, what they pay on their mortgages, and even their job 

searches. 

Unfortunately, credit scores are often misunderstood, and I hope 

this hearing will help clear up some misconceptions about these 

seemingly mystical numbers, which I believe allow credit to be extended more effectively and efficiently. 

Before coming to Congress, I ran a small furniture store in the 

town of Westminster, Barrett’s Furniture—Your First Choice for 

Quality and Value, gentlemen, by the way. We are not in business 

anymore, so no more deals. 

Because I knew most of the people who came in my store—I 

knew where they worked, I knew their families, I knew their character—I was able to determine the credit risk readily available and 

often extended credit to those who might look a little risky on 

paper. Even if my customers might have to stretch a bit to make 

payments, they would make them; and because they would have to 

see me in the grocery store, walking around town, they felt obliged 

to do so in many cases. The system worked for me at Barrett’s Furniture. 

However, larger businesses or ones that are online need a way 

to determine the creditworthiness of a much bigger group of people, 

and credit scores provide a valuable tool to compare the credit risks 

of borrowers. Credit scores are simple, inexpensive, and effective 

predictors of risk that a business owner can use to make sound 

business decisions. 

Generally, as policymakers, we want to create an environment 

where lenders can price risk as accurately and efficiently as possible, and the market will encourage and improve tools that help 

lenders make these risk calculations more accurate. Because of 

competition, lenders will choose to price risk as accurately and 

competitively as possible. Lenders want to ensure that their rates 

are competitive so they can attract borrowers. 

At the same time, a lender who makes a practice of lending 

money that never gets repaid will probably not be in business too 

long. If credit scores are a valuable tool for predicting risk, they 

will apply them to lending decisions; but if credit scores don’t accurately predict risk of late payments or default, they won’t use them 

anymore. In short, the free market should help ensure the validity 

of credit scoring. 

4 

We have seen in the mortgage markets what can happen without 

proper lending discipline. While credit scores are only one tool that 

lenders can use to determine who gets a loan and the terms of a 

loan, I think it is a valuable tool in the way they are standardized, 

inexpensive, unbiased, and, most importantly, predictive of risk. 

I would be very concerned about curtailing or banning the use of 

any impartial measure that helps companies better determine risk. 

I would also be concerned about any efforts that would make this 

number less predictive of risk. If we did any of these things, we 

would drive up the cost of credit for lower-risk borrowers, and we 

would essentially be subsidizing the risk for high-risk borrowers. 

While availability of credit can be a benefit for those who can 

repay, we have seen in the housing market what happens when 

credit is widely available for those who cannot pay. Credit scores 

are not only a market-based method of allowing businesses to better estimate risk; they also reward sound financial decisions by 

borrowers. Credit scores are based on objective numbers and patterns of behaviors, and the very acts that lead to high credit scores 

basically constitute sound financial behavior. 

Simply paying bills on time and not overextending oneself with 

debt tends to lead to better financial health; I think that is pretty 

much a given. At the same time, borrowers should know that credit 

scores are accurate measures of financial behavior; and I applaud 

Congress for passing the Fair Credit Act and the FACT Act so that 

consumers know their personal information is protected and that 

their credit reports contain accurate information. 

Americans should also be familiar with what they should be 

doing for a good credit score, which should then also help improve 

financial behavior. I plan to hold a TeleTown Hall meeting for my 

constituents on financial literacy, because I believe this is an important skill for Americans. We should have the proper tools to 

make sound financial decisions, and I hope that this hearing will 

reinforce that, Mr. Chairman. 

Once again, I would like to thank you for holding this hearing, 

Mr. Chairman, and I am confident that the findings will be very 

informative. I yield back. 

Chairman WATT. I thank the gentleman for being here and for 

substituting for the ranking member. 

Mr. Cleaver, do you wish to make an opening statement? 

Mr. CLEAVER. Yes, Mr. Chairman. 

Chairman WATT. You are recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman, and Acting Ranking 

Member Barrett. 

To the witnesses, we appreciate very much your presence and 

participation in this subcommittee hearing. I am very anxious to 

hear your testimony and to become involved dialogically with you, 

because I have some understandable concern about this issue. 

The timing of this hearing, Mr. Chairman, I think is very, very 

appropriate, maybe fortuitously because of the current challenges 

facing the American public with the housing value dropping almost 

daily. And with almost all of the financial indicators suggesting 

that this may be one of the toughest financial periods that the people in our country have faced, at least this generation, credit becomes extremely important. 

5 

Recent news reports and congressional intervention have indicated that the impact of mortgage defaults has extremely damaged 

or decreased the availability of credit. Banks just a few years ago 

were making loans through the drive-out/drive-in window. You 

would just drive by and wave, and you got a loan. 

And, of course, today it is very difficult, as you know, to get 

loans; the banks are closing their wallets. So the information that 

is gained for purposes of attaining credit and the vehicle by which 

credit is issued is of utmost importance right now. 

A few years ago, I brought my grandmother, my maternal grandmother, from Waxahachie, Texas, to Wichita Falls, Texas. She was 

unable to care for herself, so we brought her up to give her a 

chance to spend her sunset years with two of her four grandchildren. 

My grandmother eventually died, and as my sister and I began 

to put the pieces together, we discovered that not only did our 

grandmother not have a checking account, we could find no evidence that she had ever had one. We found no evidence that she 

ever had a savings account. She did have some money that she had 

sewn into a pillow. That was her savings. And you could see where 

she had restitched many, many times where she made deposits. 

So I came to the conclusion—and she had an insurance policy, 

which needs to be discussed at another hearing, where she was 

paying 50 cents a week. And on the day she died—she had been 

paying it since I was a little boy; I remember when the insurance 

man used to come by with a little leather bag to collect his 50 cents 

every week, and when she died, she had $350 in life insurance. But 

that is another hearing. 

The point I want to make is that my grandmother had no credit, 

but she paid all her bills. If she was out of town and her water bill 

became due, she would go back home to pay $3.50 for a water bill. 

I am very interested in some of the uncommon ways that the En 

Bancs are functioning today. The Missouri Department of Insurance filed a report which suggested that the average credit scores 

were 12.8 percent lower in the inner cities of Kansas City and St. 

Louis in what is called the Boothill, the southern part of the State 

of Missouri—12.8 points lower. It also reported that certain ZIP 

codes could be looked at to see the low credit scores. 

I am interested in discussing all of these issues with you, and I 

appreciate Chairman Watt calling this hearing. I look forward to 

your testimony. 

Thank you, Mr. Chairman. 

Chairman WATT. I thank the gentleman for his opening statement. And as usual, he brings a real-world perspective to these 

issues, so we need that. 

The gentleman from California, Mr. Royce, is recognized for 5 

minutes. 

Mr. ROYCE. Mr. Chairman, thank you. I would just like to briefly 

welcome Mr. Stan Oliai here from Costa Mesa, which is in Orange 

County, California. He is the senior vice president of decision 

sciences for Experian Decision Analytics. Experian is here, along 

with Equifax and TransUnion; they are the three major credit reporting agencies that provide useful information to both consumers 

and to lenders in the United States. 

6 

I think the ability of lenders to properly assess the risk posed by 

potential borrowers through risk-based pricing is one of the most 

fundamental tools necessary for our financial services sector to 

function properly here in the country. Additionally, a consumer’s 

ability to track their credit report through credit monitoring services allows them to understand what is impacting their credit 

score. It helps protect them against identity theft, and it limits the 

damage following security breaches. 

So, again, I would like to welcome Stan Oliai here and all of our 

other witnesses testifying today. I yield back the balance of my 

time, Mr. Chairman. 

Chairman WATT. I thank the gentleman for being here. 

The gentlelady from California is recognized for 5 minutes. 

Ms. SPEIER. Mr. Chairman, thank you for providing us the opportunity to have this hearing. I think the consumers of this country 

would be well-served to listen in on what we are going to be talking 

about this afternoon. 

I want to welcome Mr. Quinn from Fair Isaac—which is located 

in northern California—a company that, over the years, I 

interacted with when I was in the State legislature. 

I would just like to say in my opening comments that there is 

an incredible mystique associated with one’s FICO score. And when 

I have reviewed this in the past, I am reminded of its being like 

a black box. We really don’t know what goes into the Fair Isaac formula to come up with the FICO score, and in many respects it is 

guarded more rigorously than Fort Knox. 

Having said that, I would just like to say to all of you who will 

be participating in this first panel, the biggest problem is with the 

errors in credit reports; and when there are errors in credit reports 

that are then transmitted to Fair Isaac and then incorporated into 

a FICO score, it is virtually impossible to undo it. 

I was part of an exercise with a local TV station in Sacramento 

a couple of years ago where we took my credit information and 

looked at my FICO score and looked at the errors associated with 

my credit reports. And, Mr. Chairman, I would think it would be 

an interesting experiment if all the members who are on the committee this afternoon were given an opportunity to look at their 

FICO scores and then their credit reports to see how much misinformation there is in one’s credit report. Because the credit report, 

from a historical perspective, has looked at 40 percent error rates 

associated with what is in the credit report. When that is then 

factored into a FICO score, you can see how many consumers 

across this country would be dismayed at a credit score that was 

not, in fact, reflective of their credit behavior. 

I yield back my time. 

Chairman WATT. I thank the gentlelady for being here. And we 

also were surprised at the interest in this hearing today. We welcome the presence of C–SPAN 3 that is covering this hearing. I 

think the topic has kind of taken on a life of its own in this credit 

environment, in this mortgage environment. 

So we are anticipating an extremely interesting, informative, and 

educational hearing. It is not just for legislative purposes, but 

hopefully, people will look in and become more informed about 

7 

their own individual credit. And if they do that, I think we will 

have achieved a nonlegislative objective also. 

I am going to proceed with introducing the witnesses. Their full 

biographies will be put into the record, so I am going to do a very, 

very abbreviated—with your permission—introduction of the witnesses. 

Our first witness will be Mr. Thomas J. Quinn, who is the vice 

president at Fair Isaac Corporation, the corporation that I described briefly in my opening statement. 

Our second witness has been informally introduced by his Member of Congress, Mr. Royce. He is Mr. Stan Oliai—I think I got it 

right—senior vice president, Experian Decision Analytics, Experian 

PLC. 

Our third witness on this panel will be Mr. Richard G. Goerss, 

chief privacy officer and regulatory counsel at Equifax, Inc. 

And our final witness on the first panel will be Mr. Chet 

Wiermanski, group vice president, global analytical and decision 

systems, TransUnion LLC. 

Without objection, each of your written statements will be made 

a part of the record in their entirety, and each of you will be recognized for 5 minutes or thereabouts to summarize your testimony. 

You have a lighting system in front of you. It starts off green, 

goes to yellow at 4 minutes and to red at 5 minutes. We don’t expect you to stop in the middle of a sentence; just sum up as quickly 

as you can. I have not been accused of being all that tough on the 

gavel in opening statements because we are here to learn what you 

have to tell us. But your full statements will be made a part of the 

record, and so we hope that you will summarize within approximately 5 minutes. 

Mr. Quinn, you are recognized for 5 minutes. 

STATEMENT OF THOMAS J. QUINN, VICE PRESIDENT, FAIR 

ISAAC CORPORATION 

Mr. QUINN. Mr. Chairman, and members of the subcommittee, 

my name is Tom Quinn, and I am vice president of global scoring 

solutions for Fair Isaac Corporation. Thank you for the opportunity 

to testify before you today regarding consumer education issues involving credit scores. 

Founded in 1956, Fair Isaac Corporation is the leading provider 

of analytics and decision-making technology. We are not a credit 

reporting agency, but partner with the national credit reporting 

agencies to implement and distribute the FICO scores we develop 

to the thousands of U.S. lenders who use this score in their decision process. 

A FICO store is a three-digit number ranging from 300 to 850, 

where the higher the score, the lower the risk. Lenders use the 

score, along with other information, to decision the request for 

credit and set the credit line and pricing terms. 

Creating the FICO score model requires two samples of credit reports, 2 years apart, for the same randomly selected depersonalized 

set of consumers provided by one of the national credit reporting 

agencies. Those credit factors found to be most powerful and consistent in predicting credit performance individually and in comVerDate Aug 31 2005 15:29 Nov 19, 2008 Jkt 044906 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\44906.TXT TERRIE
8 

bination form the basis for the complex mathematical algorithm 

which becomes the score. 

The traditional FICO score model evaluates five broad types of 

data elements from the consumer credit report. These include, listed in order of importance: Previous credit payment history, about 

35 percent contribution; level of outstanding debts, about 30 percent contribution; length of credit history, 15 percent contribution; 

pursuit of new credit, 10 percent contribution; and mix of type of 

credit, about 10 percent contribution. 

FICO scores were first introduced to the marketplace in 1989 

and have been consistently redeveloped and updated throughout 

the years to ensure their predictive strength. Since it was first introduced, authorized user credit account information present on the 

credit report has been considered in the FICO score calculation. 

Last year, Fair Isaac announced that with our new model update, which is referenced as FICO ’08, authorized user accounts 

would no longer be included in the calculation of the scores. Fair 

Isaac was trying to protect lenders and consumers from a new type 

of credit repair practice known as ‘‘piggybacking.’’ Piggybacking is 

an attempt to artificially and deliberately misrepresent consumers’ 

credit histories to potential lenders by paying consumers with good 

credit scores to add strangers with poor credit scores to their credit 

card account as an authorized user. 

After consulting with the Federal Reserve Board and the Federal 

Trade Commission earlier this year, we have now decided to continue considering authorized user account tradeline information in 

the FICO ’08 models. Our scientists have devised a method to consider these trades while materially reducing the negative impact 

that could arise from the piggybacking practice. 

Fair Isaac also pioneered the use of alternative data to assist in 

credit decisions for the 30 to 50 million consumers with thin credit 

files or no credit files. Our FICO expansion score service evaluates 

nontraditional credit history information provided by specialized 

credit bureaus, including payment performance records for purchases such as furniture bought on layaway, verified bill payment 

information, membership account performance at retail lenders, 

and selected performance involving bank deposit accounts such as 

the propensity to overdraw checking accounts. 

Fair Isaac has been a pioneer in consumer education about credit 

scores. On March 19, 2001, Fair Isaac, in partnership with Equifax, 

launched its score explanation Web site for consumers called 

myFICO.com. At myFICO.com the consumer obtains their FICO 

score, the underlying credit report on which it was generated, as 

well as a detailed explanation of the score and the reasons why 

their score was not higher. 

The price of the product was $12.95 in 2001, when first introduced, and has increased over 7 years to, currently, $15.95, for an 

average annual rate of increase of 3.3 percent. During the past 7 

years, Fair Isaac has introduced additional products to help consumers with their credit management objectives. 

To date, approximately 20 million FICO scores have been delivered to consumers from myFICO.com and Equifax.com via affiliates. By using myFICO, consumers have taken the step to control 

9 

their credit lives and help improve and protect their overall financial health. 

There also is an abundant amount of educational materials about 

credit scoring on myFICO.com; myFICO has also partnered with 

consumer outreach entities such as the Consumer Federation of 

America on creation of credit score educational materials which 

have been distributed to thousands and thousands of consumers 

nationwide by both organizations. 

Fair Isaac is regulated at the Federal level by the Federal Trade 

Commission. We have a regular, ongoing dialogue with the FTC in 

which we explain our products and practices. In addition, we frequently interact with and conduct education programs on FICO 

scores for the FTC, the OCC, the OTS, the FHA, the FDIC, and the 

Federal Reserve. We also regularly speak with many State attorneys general and other government officials. 

I thank you for the opportunity to share with you Fair Isaac’s expertise and experience in this important area. 

[The prepared statement of Mr. Quinn can be found on page 136 

of the appendix.] 

Chairman WATT. Thank you so much for your testimony. 

Mr. Oliai. 

STATEMENT OF STAN OLIAI, SENIOR VICE PRESIDENT, 

EXPERIAN DECISION ANALYTICS, EXPERIAN PLC 

Mr. OLIAI. Good afternoon, Chairman Watt, Representative Barrett, and members of the subcommittee. 

My name is Stan Oliai, and I am senior vice president for 

Experian Decision Analytics. I would like to thank the committee 

for the opportunity to testify here today and provide the information that will describe how credit scores are developed and used. 

I will summarize the longer statement that I have submitted for 

the record. 

In starting, I would like to go over a brief background of 

Experian. With our North American headquarters in Costa Mesa, 

California, Experian currently operates in 65 countries with more 

than 15,000 employees worldwide. Experian is well known in the 

United States as one of the three national credit reporting agencies; however, Experian is also a global leader in providing information, analytical tools, and marketing services to organizations 

and consumers to help manage the risk and reward of commercial 

and financial services. My business unit, Decision Analytics, serves 

as one of the world’s largest providers of software for credit scoring, 

fraud detection, and risk-based pricing. 

Most lenders use a credit score to estimate the relative risk that 

a consumer presents in repayment of a loan, and use the score as 

part of a process to price the product accordingly. The use of scores 

for risk-based pricing has led to significant increases in efficiencies 

in the market that provides tremendous benefit to both businesses 

and consumers. Some of the tangible consumer benefits include less 

cross-subsidization of risk, lower prices, more available capital, and 

real-time lending decisions. 

Despite these benefits, the process is often not fully understood 

or appreciated. One thing that is sometimes misunderstood is the 

role of the credit reporting agency in the lending process. 

10 

I want to emphasize that neither the company that developed 

scores nor the credit reporting agency that delivered the information to scoring models participate in the actual lending decisions. 

We simply are not in a position to testify as to how scores are 

weighted or what other information, besides the scores, is considered when a lending decision is made. The lender is the entity that 

makes those decisions. 

Credit reporting agencies do, however, provide credit reports and 

can generate a credit score from a model chosen by a lender. These 

credit scores are then used in the lenders’ own proprietary underwriting process which would likely use information from multiple 

internal and external sources when making such a decision. 

It is worth noting that each lender is different. An acceptable 

risk level for one lender may not represent an acceptable risk level 

for another. For example, one lender may see one recent 60-day 

late payment as acceptable while another may not. 

I would like to briefly describe what a credit score is and how 

it is calculated. 

A credit score is a numerical expression of risk of default based 

on a credit report. The score is produced by a mathematical formula created from a statistical analysis of a large representative 

sample of credit reports. The formula is typically called a ‘‘model.’’ 

The credit score is calculated by the model, using only information in the credit report. These reports include the following types 

of information: The credit account history, such as was the account 

paid, was it paid on time, how long has the account been open, and 

what is the outstanding balance; the type of account, is it a mortgage, is it an installment, is it revolving; the public record information, liens, judgments, bankruptcies, for example; and inquiries in 

the credit file that represent applications for new credit and other 

consumer-initiated transactions. 

A credit report does not include information such as income or 

assets. It also does not include demographic information such as 

race or ethnicity. Demographic factors are not used in the calculation of a credit score. 

Regulation B allows lenders to use models that are empirically 

derived and demonstrably and statistically sound. 

Regulatory oversight of credit scores is accomplished through 

routine bank examinations for compliance with a number of laws 

that govern fair lending, such as the Equal Credit Opportunity Act. 

This makes sense because the lender chooses the scoring model to 

assist in this proprietary underwriting process. The lender is ultimately responsible for demonstrating to regulators that the scoring 

model it has chosen complies with the lending laws. 

Next, I would like to describe how consumers can obtain their 

credit scores, as well as maintain a good credit score. 

A consumer can obtain a free disclosure of the credit report once 

a year from www.annualcreditreport.com. While obtaining an 

Experian credit report through that Web site or at any time 

through Experian.com, a consumer can obtain their VantageScore 

for $5.95. Since Experian believes it is in the consumer’s best interest to acquire the credit report and the score at the same time, we 

also offer a combined package of both for $15. This way, consumers 

11 

are able to see how the score and the accompanying reason codes 

actually relate to the information in the credit report itself. 

The committee has asked about the total number of scores and 

consumer disclosures Experian has made to consumers since the 

FACT Act was enacted. We are pleased to provide an aggregate of 

those numbers to the committee through our trade association, the 

Consumer Data Industry Association, or CDIA, that is compiling 

this information across the industry, and will provide it to the committee as soon as possible. 

I would also like to describe the benefits of credit scoring. Credit 

scores provide a marked improvement over manual review. Their 

use allows for lending decisions to be made accurately, efficiently, 

and in a timeframe convenient for consumers. Since a credit score 

is calculated on the information in the credit file, the potential subjectivity on the part of a lender is limited. Credit scores form consistency in decisions as the same formula is applied evenly across 

a lender’s portfolio. In fact, automated credit scoring leaves much 

less opportunity for discrimination in a potentially subjective assessment by a lender. 

Credit scores are blind to the factors protected by the Equal 

Credit Opportunity Act, which include race, color, religion, national 

origin, sex, marital status, and age. 

In conclusion, credit scores remain one of the great advancements in consumer lending and represent enormous opportunity for 

both consumers and lenders. Experian works hard to ensure that 

we have accurate and up-to-date credit information. We do this so 

that consumers are assured that their credit scores will serve as a 

useful tool in helping them to obtain the credit for which they are 

eligible. 

Thank you for the opportunity to express Experian’s views on 

this important issue. 

[The prepared statement of Mr. Oliai can be found on page 126 

of the appendix.] 

Chairman WATT. Thank you for your testimony. 

Mr. Goerss of Equifax, you are recognized for 5 minutes. 

STATEMENT OF RICHARD G. GOERSS, CHIEF PRIVACY 

OFFICER AND REGULATORY COUNSEL, EQUIFAX, INC. 

Mr. GOERSS. Mr. Chairman, and members of the subcommittee, 

I am Richard Goerss, chief privacy officer and regulatory counsel 

for Equifax Inc. We have filed written testimony for the record, and 

with your permission, I would like to take just a few moments to 

highlight that testimony. 

I want to thank you for this opportunity to testify regarding 

what borrowers need to know about credit scoring models and credit scoring. My oral testimony is primarily focused on the information that Equifax provides to consumers about credit scores, and 

how consumers can obtain credit scores from Equifax. 

Founded in 1899, Equifax Inc. is the oldest, the largest, and the 

only U.S. publicly traded of the national companies that provide 

consumer information for credit and other risk assessment decisions. As one of the three national credit reporting agencies, the activities of Equifax are highly regulated under the Fair Credit Reporting Act and other related Federal and State statutes. Equifax 

12 

is a highly responsible steward of sensitive consumer information, 

and as such, we are committed to fairness and privacy protection 

for consumers. 

My written testimony describes what a credit score is, discusses 

the benefits which credit scoring provides to both consumers and 

lenders, discusses Equifax’s scoring models and scores, explains 

how consumers can obtain their credit score directly from Equifax, 

and identifies some steps that consumers can take to improve their 

creditworthiness and, by extension, their credit scores. 

Even more of that information is available on the Equifax Web site. For $7.95, consumers can obtain a disclosure of the Equifax 

FICO, or Beacon score, which is the credit scoring model most commonly distributed by Equifax to lenders. 

Consumers can request a credit score disclosure by itself, that is, 

without a copy of their credit file, a credit monitoring product, or 

any other ongoing scoring products, by sending a written request 

with proof of identity to Equifax, Post Office Box 105252, Atlanta, 

Georgia 30374, or by calling us toll free at 1–877–SCORE–11 or 1– 

800–685–1111. 

Consumers calling these toll free numbers also have the option 

to order their credit score disclosure together with a copy of their 

Equifax credit file, and if they choose to, just order a copy of their 

Equifax credit file without, in fact, the score disclosure. 

In addition to the consumer’s score, the Equifax score disclosure 

package includes the key scoring factors that affected the consumer’s credit score, the FTC’s summary of consumer rights under 

the Fair Credit Reporting Act and other information. 

Additionally, consumers who obtain their free FACT Act annual 

file disclosure from Equifax through the annualcreditreport.com 

Web site can also obtain credit score disclosure along with their 

free annual credit file disclosure, if they wish to do so. 

Further, consumers entitled to free credit file disclosures for 

other reasons under the Fair Credit Reporting Act or State law can 

request free disclosure, free file disclosure at www.Equifax.com/ 

FCRA where these consumers are also offered the opportunity to 

obtain their credit score disclosure. Additionally, at our Web site, 

www.Equifax.com, consumers can obtain, at no cost, general but 

helpful information about credit scores. 

Let me close by saying a word about the critical and positive role 

played by credit scores. 

These scores promote fairness in consumer lending decisions, 

help to make credit available to a broad range of consumers, and 

help to increase efficiency and cost effectiveness in our consumer 

credit markets. Increasingly, the emphasis on credit scores is helping consumers to better understand their underlying credit reports 

and the financial literacy elements of consumer credit. 

At Equifax, we are proud of the early and pivotal role we have 

played in developing credit scores and working with lenders and 

consumers to meet their lending and borrowing needs, but more 

needs to be done in this very dynamic marketplace. Equifax, for example, is continuing to look at alternative data and other sources 

and means for credit scores and for credit decisions. 

Thank you again for the opportunity to testify on this important 

issue. Equifax looks forward to continuing to work with the ConVerDate Aug 31 2005 15:29 Nov 19, 2008 Jkt 044906 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\44906.TXT TERRIE
13 

gress on scoring issues and on educating consumers as to what 

they need to know as borrowers about credit scoring models and 

credit scores. Thank you. 

[The prepared statement of Mr. Goerss can be found on page 82 

of the appendix.] 

Chairman WATT. Thank you for your testimony. 

Mr. Wiermanski, you are recognized for 5 minutes. 

STATEMENT OF CHET WIERMANSKI, GROUP VICE PRESIDENT, 

GLOBAL ANALYTICAL AND DECISION SYSTEMS, 

TRANSUNION LLC 

Mr. WIERMANSKI. Chairman Watt, Congressman Barrett, and 

committee members, thank you for your invitation to TransUnion 

to testify today on the important subject of what borrowers need 

to know about credit scoring models and credit scores. 

At TransUnion we are proud of our contribution to the continuing development of credit scoring models which have fostered 

the availability of financial services to American consumers. 

TransUnion provides our customers in the financial services industry with scoring models which help financial institutions increase 

the breadth of their services to consumers. We provide individual 

consumers with educational information about credit scores, and 

we have for many years encouraged full-file reporting by utilities 

and telecommunication firms as, if practiced, benefits in particular 

those consumers with thin credit files. 

Mr. Chairman, without any doubt, the use of credit scoring has 

produced significant consumer benefits. The growth of consumer 

credit scoring has allowed lenders to more accurately predict risk 

exposure at multiple levels. This has allowed the implementation 

of more granular, risk-based pricing strategies which, in turn, has 

led to decreased cost and increased availability of consumer credit. 

The same phenomenon has occurred in the property and casualty 

insurance marketplace. 

It is important to explain what a credit score is. A credit score 

is simply a numeric reflection of a consumer’s predicted behavior, 

such as creditworthiness, based upon an evaluation of several different factors. Prior to credit scoring, lenders relied on individual 

loan officers to eyeball a credit application and determine whether 

the consumer was a good credit risk. Credit scoring standardizes 

that process within a lender’s company and allows for a more objective and uniform review of applications. 

It is important to note that there is not one credit score for a consumer. Credit scoring models vary among lenders, consumer reporting agencies, and credit score providers. Credit scoring models 

can vary within the same lender, such as if a lender uses one scoring model for approving credit card applicants, but a different 

model for mortgage underwriting. 

We believe that a credit score such as the TransRisk or 

VantageScore a consumer can buy from TransUnion is very useful 

in giving the consumer a general understanding of how a lender 

may evaluate the consumer’s creditworthiness. Although these 

credit scores are used by lenders and insurers, they also allow consumers to have a general understanding of credit scores. 

14 

I should also note that a consumer need not even buy a credit 

score to understand the key factors considered in most credit 

scores. This type of information is available from us at no cost. Although understanding the credit scoring process has clear consumer benefits, in our experience it is more important for the consumer to verify the accuracy of the information in his or her credit 

file at a consumer reporting agency. 

At TransUnion, we believe that a consumer’s first priority on this 

issue should be to exercise the right to obtain a free annual disclosure of his or her credit report and to ensure that the information 

is complete and accurate. 

There are hundreds of credit scoring models used by creditors 

and insurers, but there are presently just three nationwide consumer reporting agencies which maintain a central Web site, 

annualcreditreport.com, from which each American can obtain a 

free annual credit report from either TransUnion, Equifax, or 

Experian. 

Credit scoring models depend on the accuracy, completeness, and 

integrity of the underlying information in the credit report; as 

such, that deserves priority. 

Finally, I want to touch briefly on the issue of alternative data. 

There is strong evidence to suggest that consumers would benefit 

from the increased reporting of nontraditional credit information. 

For example, consumers with thin credit files and, in particular, 

minorities, immigrants, young and old, all experience a net benefit 

from full-file reporting by energy companies and telecommunication 

providers. Consumers with impaired credit histories also obtain a 

net benefit from full-file reporting by these companies. 

We are presently engaged in a follow-up study to learn more 

about the impediments to full-file reporting faced by the utilities 

and telecommunication industry. It may be very well that Congress 

may have a role to play in removing roadblocks to encourage voluntary full-file reporting. 

Thank you again, Chairman Watt and Ranking Member Barrett, 

for this opportunity to present our views. I look forward to answering any questions you may have. 

[The prepared statement of Mr. Wiermanski can be found on 

page 173 of the appendix.] 

Chairman WATT. Thank you so much. 

I would like to thank all of these witnesses for being with us. 

We will now recognize each member of the subcommittee for 5 

minutes each to ask questions of this panel. And, as usual, I have 

a whole file full of questions. That is what happens when you learn 

more and more about what is going on in a particular area. 

I would say as a general statement, just to set you at ease, that 

I have become more and more convinced of the value of having 

some form of credit reporting and credit scoring. There are a couple 

of concerns about things, though. 

Number one, I noticed when I got my credit report that because 

I had gone into a department store, for example, where they told 

me, okay, if you open our department store credit card we will give 

you a 10 percent discount on your purchase. It sounded like a nobrainer to me—I mean, 10 percent off the top. But I didn’t realize 

until today, when I started reviewing my credit report, that by 

15 

doing that, I was actually worsening my credit. On each of those 

three occasions where I did that, I got the 10 percent or 15 percent 

discount; on at least two of the three occasions, I have never used 

the credit card again. 

So the first question I have is, you mentioned that debt is obviously one of the factors that you consider in your modeling. But in 

that case, debt was not the amount that they required me to 

charge on that first transaction, but the $5,000 credit limit that 

they gave me that I never went back or used. 

So I am concerned that either we ought to be making retailers 

disclose that opening those accounts could have an adverse impact 

on credit or that the definition of debt when you are doing your 

modeling perhaps should take into account only what somebody 

has incurred as opposed to some limit that they quite often never 

use. 

In fact, I don’t think on any of the credit cards that I had reported on, I have ever gotten anywhere close to the maximum credit that they have authorized me, yet it seemed to me that you were 

taking into account the maximum credit that really never got used. 

How can this be addressed? 

Now, the second question I have is—and I am going to let you 

answer both of these together because I know I am going to run 

out of time; and this is happening with a bunch of students now, 

apparently. They are shopping around for the lowest rate that they 

can get on a student loan. 

I noticed on my credit report, when I went shopping for alternative credit to find the best available credit, the inquiries count 

against my credit rating. That seems to indicate to me I am a better shopper, I am a better consumer or to be a positive that I am 

shopping around, rather than a negative that I am shopping 

around; yet, it seems to me in the models that are being used, that 

becomes a negative factor in evaluating my credit. 

In fact, all three of your companies will be getting a letter from 

a number of us about these student loan issues soon. So if you are 

not prepared to answer that one today, we are going to try to get 

you to answer it at a later date. 

But give me your responses on both of those two issues that I 

have raised. 

Mr. Oliai, do you want to go first? 

Mr. OLIAI. I would like to. 

On the first question regarding applying for a retail card at point 

of sale to get a discount, that is actually a very common practice 

and, frankly, like you say, a no-brainer by and large. While it does 

post an inquiry to your account, which generally the more inquiries 

you have, the higher—the relationship is towards a higher level of 

risk, that occurs when there is a good amount of new inquiries. 

One, two, or three generally don’t move the dial that much. And 

I am using some general terms. 

If I were to take your example even that much further, there are 

multiple ingredients in a credit score. And so, while having the additional retail inquiries may have taken a few points off of it, opening up a new account for which you have so much available credit, 

the difference between what you actually used versus the line that 

was assigned actually works in your favor. This shows the more 

16 

available credit you have, the better your credit standing in general. 

So we can’t look at these kind of on a one-attribute-by-one-attribute basis, as it is a combination of factors that come into and 

feed the score. 

It would be interesting to look at your case in particular. My gut 

feeling tells me your score probably would have increased over time 

because of that tradeoff between the one inquiry and the increased 

amount of available credit. 

Chairman WATT. I confess I did have a pretty good credit score, 

but it wasn’t 850. I understand that there is a zero probability that 

somebody can get an 850 score. That is another thing I learned in 

this process. 

Mr. Goerss. 

Mr. GOERSS. Well, I am not the—the gentlemen here are the 

statisticians and model developers. But for the Equifax models, the 

combination of inquiries, our models that we develop don’t take inquiries into much account at all. So that addresses either— 

Chairman WATT. Into much account or into no account? 

Mr. GOERSS. Four of our models take them into no account, one 

or two of our models use it to less than 1 percent. So most of our 

models— 

Chairman WATT. So in your model, students who are shopping 

around for student loans, making inquiries, that is not going to 

count against them? 

Mr. GOERSS. That is correct, it would not. Nor— 

Chairman WATT. What about you, Mr. Wiermanski? 

I am going to get it right at some point. That is what you get 

for accusing me of being Polish. I am just going to butcher your 

name the rest of the day. 

Mr. WIERMANSKI. Just to add to what Stan had mentioned, inquiries are included in the model because they prove statistically 

that they do rank-order the risk. So that is why any components 

in a credit scoring system find their way into the score. The 

amount— 

Chairman WATT. Say that one more time. 

Mr. WIERMANSKI. The inquiries find their way into a credit scoring system based upon empirical and statistically valid data, and 

that is how they find their way into being included as a component 

of a credit scoring model. 

The weights that are assigned— 

Chairman WATT. So you are saying, by and large, the more inquiries you have, generally the worse your credit is going to be. But 

for somebody where that is not the case, it ends up working against 

them because on a general level, statistical level, it is predicted. 

Mr. WIERMANSKI. And as Stan had mentioned, as the number of 

inquiries increase over a period of time, they become more severe 

in terms of how you might be penalized on your credit score. 

I do want to note that in one of our models, developed specifically 

for consumers with past credit delinquencies, the presence of the 

first inquiry actually is treated positively. So consumers who may 

have had delinquent information posted to their credit file, when 

they go shopping after a period of time and if that is one inquiry, 

they actually are rewarded for shopping responsibly. If there are a 

17 

number of inquiries quickly afterwards, then they do become penalized. So inquiries, by nature, are not always treated negatively. 

And then the last piece on student shopping, there is a practice 

in the industry, which varies across scoring systems, which is 

called ‘‘inquiry de-duping,’’ where inquiries within a period of time 

from the same type of institution—and this is particularly implemented for auto loans and mortgages; they group the inquiries 

from banks, finance companies and mortgage companies and treat 

them as one. And at TransUnion we have looked at this student 

shopping phenomenon; and the way that our de-duping process 

works, we believe that consumers would not be adversely impacted 

by shopping for student loans because the way we go about de-duping the inquiries, reduced—minimizes that shopping behavior. 

Chairman WATT. Okay. My time has expired. We will do followup on the student side of this in particular because I think, more 

and more, people are raising this as a concern. And it may not be 

a real concern based on what you have testified, but I think we 

need to get that verified. 

Mr. Barrett is recognized for 5 minutes for questions. 

Mr. BARRETT. Thank you, Mr. Chairman. 

Mr. Goerss, you mentioned alternative sources rather than, I 

guess, your standardized. And there are a lot of different things. 

Talk to me a little bit about alternative sources and what other 

issues or what other scoring methods we can use. 

Mr. GOERSS. There are a number of different alternative sources. 

I think probably a definition of alternative data would be data that 

is not currently used in the credit file. We, at Equifax, have experience working with utility companies, have developed and managed 

utility exchanges. They contain a limited amount of telco and utility information accounts that are used by the members of that exchange in limited roles at this point, but they are used to help the 

members determine if a credit deposit needs to be assessed or not. 

And so we are working with them and will continue to work in 

that area. We are also looking at different sources for rental-type 

accounts, such as landlord-tenant, are there other rental-type accounts that can be used. 

For all of the information that can be used, that is alternative 

data, it is important to analyze what it brings to a credit-reporting 

decision. Are the data furnishers or would the data furnishers be 

in a position to meet all of the FCRA requirements for data furnishers, in terms of making sure the information is accurate, making sure that they participate in the reinvestigation process as 

needed? But we feel that there are certainly a lot of opportunities 

in that area that we continue to pursue. 

Mr. BARRETT. Okay. Let me move along a little bit. 

Now, Mr. Oliai, you talked about an automatic credit system. I 

guess when I thought about somebody’s credit score, I thought 

about a person coming in and somebody taking a look and saying, 

‘‘That is Gresham Barrett,’’ yada, yada, yada. 

Do you plug all this stuff into a machine and the machine just 

factors all of this data? Tell me a little bit about an automatic credit score. 

Mr. OLIAI. Sure. First of all, there are so many different types 

of credit scores. But, typically, they are implemented electronically, 

18 

so that when a lender or credit granter of any kind pulls a credit 

report, the score is returned straight away, either calculated and 

returned by one of the bureaus or calculated in their own environment with their own application processing and decisioning software. 

So that score is, just as we mentioned before, one element of the 

overall credit decision that is then plugged into some sort of decision framework, that proprietary decision framework that a lender 

or credit granter would have. So it is done very much on the fly, 

real-time, with respect to credit applications. 

Mr. BARRETT. Okay. Mr. Wiermanski, I know when I was in the 

furniture business, when we pulled somebody’s credit report, there 

was hardly anybody who didn’t have some type of medical bill in 

some shape, form or fashion. Tell me how that affects credit scores, 

some type of medical bill, because we had people who had excellent 

credit with the exception of medical bills, and they always paid 

their bills. So, kind of factor that into it. 

I am a big proponent of the free market. I think everybody needs 

to use their own formula. But would there be an advantage—two 

questions: about medical bills; and the possibility of some standardized form that everybody used, just one, rather than several different ones. If you would take those two. 

Mr. WIERMANSKI. The way that medical bills would find their 

way into a credit bureau typically would be from a bad debt collection opportunity. So my understanding is that most of the generic 

models that are offered, whether they are developed by TransUnion 

and other third parties, typically do include those medical items 

when they surpass a certain threshold. And, at this point, I don’t 

know what that threshold is; I believe it might be $100. 

At TransUnion, we have just introduced our new versions of our 

TransRisk scores, the 3.0 versions. They do not take medical collection items into consideration in the score calculation. So we have 

engineered those where we cannot include them for credit scoring. 

So I think in terms of how we might be able to standardize our 

approach, it would be worthwhile to have the debt collection agencies have some type of standardized nomenclature returned to the 

bureaus to identify medical debt so that they can be considered in 

the scoring systems, or not. 

Mr. BARRETT. Okay. Thank you. 

Mr. Quinn, say I am a high school student getting ready to go 

to college. How do I build my credit history, number one? And, 

number two, we as leaders, how do we do a better job of educating 

individuals on financial situations, how to keep their rear end out 

of debt? That is a South Carolina term; sorry about that. 

Mr. QUINN. I think we can all understand that term. 

I think one of the best ways to help young adults establish credit 

is through the family interaction, parents educating the young 

adults about how to manage their credit in their day-to-day examples in household debt management. 

And there is a variety of different institutions out there that 

have programs set up to help young people establish credit. Sometimes it requires a cosigning, for example, with a parent. Credit 

card issuers do have the authorized user approach as one way to 

help younger consumers get established with credit. 

19 

So I think there is a variety of different options out there to help 

young people get established with credit. I think, again, the challenge is, are they aware of that, and if they are not, how can we 

collectively make them more aware of those opportunities? 

Mr. BARRETT. Thank you, gentlemen. 

My time is up, Mr. Chairman. 

Chairman WATT. I thank the gentleman. 

Mr. Cleaver is recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I was sufficiently depressed listening to you talking about what 

you learned about your credit score and the inquiries. I have a lot 

of questions, so I am hoping you can give some succinct responses. 

Let us say I have a credit card, the ‘‘Sink You’’ credit card, and 

I have a $20,000 limit, and someone inquires about my credit, and 

my highest monthly balance has been $10,000. But, as the reporting comes in, the software suggests that my highest balance is also 

my credit limit, so that the $10,000 represents an exhaustion of my 

credit, that I have gone to the top. 

Does that negatively impact my credit score? 

Mr. QUINN. No. With FICO scores, the way we look at credit card 

information in calculating the scores is we first look at the limit 

field to see if there is information that has been supplied by the 

credit card issuer in terms of the line, so the $20,000 in your example, if that is available, that is the figure that we would use in trying to calculate a revolving utilization calculation, for example. 

If it is missing, then we default to the highest balance field and 

use that as the limit in default, if it is not provided in the limit 

field, because the data in our analysis shows that is predictive. 

If that information is missing, then we bypass that credit card 

in any of our utilization calculation characteristics in the score. 

Mr. CLEAVER. Thank you. 

I am probably more interested in the three rating agencies. 

Mr. OLIAI. I will take the first crack. 

With the VantageScore, we actually do not include the trades 

without a limit reported. 

Mr. CLEAVER. Say that again, please. 

Mr. OLIAI. In VantageScore—let me take a step back. Typically 

where credit limit becomes an issue, or the reporting of credit limits becomes an issue, is when you are calculating utilization or the 

relation between the balance on the card over the limit. So— 

Mr. CLEAVER. And when you do this, this is not taking into any 

account the credit limit? 

Mr. OLIAI. Well, more often than not, the limit is reported to us. 

And so we are getting the actual limit from the card issuer. There 

are some models, and you just heard Mr. Quinn talk about one in 

which there is some logic built in that will go to high balance if 

limit is not available. 

As an alternative, with VantageScore, we do not let that particular trade line come into the utilization calculation where we 

have no limit. So it wouldn’t adversely impact a consumer because 

an issuer hasn’t reported the limit information. 

Mr. CLEAVER. But if a person appears on the credit report to utilize his or her credit limit, that impacts negatively; is that right? 

20 

Mr. OLIAI. Well, in general, the more available credit that you 

have that is used up and therefore not that much available credit 

left, that will point in the direction of a higher level of risk on its 

own. 

As I mentioned before, there are multiple ingredients in a credit 

score. 

Mr. CLEAVER. Okay. In your opening statement, which I appreciated, you essentially said that the credit rating agencies, and let 

me use a Biblical term—there is no respect of persons, right? 

Mr. OLIAI. I am sorry? 

Mr. CLEAVER. ‘‘No respect,’’ it is a biblical term, means that nobody gets preferential ratings, that everything is equal, that you 

mentioned there is no consideration given to race or gender. In the 

Bible—I don’t want to do a Bible study, but the quote is, ‘‘For there 

is no respect of persons with God.’’ Anyway, and now turn, please, 

to the New Testament. 

[Laughter] 

But I have a report here which would suggest the opposite from 

the Missouri Department of Insurance, which I made reference to 

earlier. It suggests that regions and ZIP codes suggest credit ratings. 

Mr. OLIAI. One is not necessarily tied to the other. The data that 

we use in the credit scores is what is available on the credit report, 

and we are completely blind to issues of any kind of ZIP preference 

or redlining or race or ethnicity. 

The fact that there are correlations doesn’t necessarily imply 

cause and effect. So we have done extensive studies, as I am sure 

other groups have done, that show that these models work very 

well irrespective of what geography or segment of the population 

you are looking at. 

Mr. CLEAVER. Well, I don’t think it is racial. I mean, the 

Bootheel of Missouri is essentially all white, and the report suggests that their credit scores are lower than the wealthier regions. 

But it also suggests that if you go to the ZIP codes, the minority 

communities then pop up as having lower ratings. 

When you are giving out information—this is a question—when 

you are giving out information, you do not use any information 

other than the actual score? I mean, you are not extracting any information that would give the lender any clue or indication about 

the geography of the person seeking that credit? 

Mr. OLIAI. That is correct; the geography will not play into a 

credit score. 

I would add, though, that if you were to take it and dissect it 

a little bit further, you might look at certain geographies and see 

a higher incidence of delinquency or default that has nothing to do 

with the geography in general, just that you have like-minded consumers living closer together. And that is probably more what is 

driving the score result than anything else. 

Mr. CLEAVER. Okay. One final question, Mr. Chairman, please, 

sir? 

Chairman WATT. Go ahead. It looks like we are going to have to 

give people an opportunity to come back. So if the gentleman 

doesn’t mind holding his question, we will do another round, beVerDate Aug 31 2005 15:29 Nov 19, 2008 Jkt 044906 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\44906.TXT TERRIE
21 

cause I have about 15 more questions that the staff has given me 

since I used up my 5 minutes. 

Mr. CLEAVER. Well, thank you, Mr. Chairman. I yield back the 

balance of my time. 

Chairman WATT. Okay. Which you didn’t have. 

[Laughter] 

Mr. Green is recognized for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the Reverend for introducing, I believe it was the 

New Testament where you left off. So I will move us from the New 

Testament to the Now Testament, if I may, and the Book of Credit. 

Mr. Quinn, my suspicion is that you may be picked on more than 

your colleagues simply because of the difficulty of pronouncing 

their names. So if it seems as though I am leaning toward you, it 

may have something to do with this difficulty. 

But let’s start with the comment that was made about on-the-fly, 

real-time, automated results. I believe that this is a question that 

would go to Mr. Oliai. 

And am I pronouncing your name correctly, sir? 

Mr. OLIAI. ‘‘Oliai.’’ 

Mr. GREEN. ‘‘Oliai,’’ all right. Mr. Oliai, you said real-time results; what does that mean in terms of actual time? Is it seconds, 

minutes? What is it, please? 

Mr. OLIAI. It is typically subsecond. 

Mr. GREEN. Subsecond? 

Mr. OLIAI. Yes. 

Mr. GREEN. Meaning you can make the inquiry, press some key, 

and within as much time as it takes to print, you have the results? 

Mr. OLIAI. That is a fair statement. Probably an easy example 

of that is Chairman Watt’s experience getting the 10 percent discount on a card. That a real-time decision, and the discount was 

offered right there on the spot. 

Mr. GREEN. And I would assume that this is then full-file traditional credit? 

Mr. OLIAI. This would apply to any applicant. 

Mr. GREEN. Any applicant? All right, well, let’s talk about an applicant who does not have traditional credit but may have what we 

will call alternative credit—light bill, gas bill, water bill, phone bill, 

and maybe some other nontraditional things. Will those be factored 

into the file that you currently have? 

Mr. OLIAI. Those sources of data don’t currently feed the credit 

file, but there are multiple offerings. It really depends upon which 

ones the lenders choose to employ. 

Mr. GREEN. Is it safe to say then, when we have this nontraditional applicant, that we move from real-time to some time more? 

Is that a fair statement, if you are going to assess and use the alternative credit? 

Mr. OLIAI. It is fair to a degree. It really does depend on the situation and how the lenders make their decision. 

Technically speaking, if you are going to now go to another alternative source, that is another transaction, another data transmission. That would add to the transaction time. Would it add so 

measurably or significantly? Probably not. If the lender had— 

22 

Mr. GREEN. Are you equipped, are you established, are you set 

up to go to alternative credit scores immediately upon realizing 

their file is thin? 

Mr. OLIAI. Experian is not set up to do that automatically today. 

We do have a third-party partnership in which, if the lenders 

choose to go that route, we can help them set that up. 

Mr. GREEN. And that is time-consuming, I assume. 

What I am trying to do is get a handle on how long, what does 

the process require in terms of time, when you move from traditional full file to alternative thin file? Can you help me with this, 

please? 

Mr. OLIAI. You know, there is no rule of thumb per se, because 

it all is relatively new, and it really is dependent upon the lending 

criteria. 

The data is available—well, to the degree that the data is available and pertinent to the decision, it can be brought in. And then 

it is incumbent upon the lender to determine how to base their decision on it. 

Mr. GREEN. In every case, can you move to an alternative thin 

file if the applicant wants you to do so in every case? 

Mr. OLIAI. That would be a function of what the lender or credit 

granter wanted to set up, as opposed to the applicant. 

Mr. GREEN. So you are prepared to give us a traditional full-file 

result, and if we want something in the alternative, the lender has 

to give some judgment as to whether or not it is appropriate to do 

so. Is that a fair statement? 

Mr. OLIAI. I believe that is a fair statement. ‘‘Appropriate’’ in the 

context of is it relevant to the decision, does it help align with their 

business strategies, etc. 

Mr. GREEN. Do you agree that persons with alternative credit 

can pay bills and can perform to the same extent as persons who 

have the traditional full files—not all, but a good many can? It is 

just that you don’t have the means of measuring them to the same 

extent that you do the persons with full files. Is that a fair statement? 

Mr. OLIAI. I believe that is a fair statement. 

Mr. GREEN. Okay. See, my concern relates to something that Mr. 

Wiermanski—and is that a fair way of pronouncing your name, sir? 

Mr. WIERMANSKI. Yes, it is. 

Chairman WATT. You just designated yourself as Polish. 

Mr. GREEN. Believe me, folks have been trying to figure out what 

I am for years. Now I know. This hearing has been a blessing for 

me. 

But, sir, you seem to indicate that people with thin files, they 

don’t get the same benefits as persons with full files, and that some 

of these people may be minorities and women. Is that a fair statement? 

Mr. WIERMANSKI. Yes, that is. 

Mr. GREEN. Would you say that a good many of them are minorities and women? 

Mr. WIERMANSKI. No, I would say that it—you are looking at a 

thin file right here. One of the few times I could be called thin is 

my credit report. So it really does encompass all walks of life. 

23 

Mr. GREEN. But, as is the case with most things, they impact 

some more than others. Do they seem to impact minorities and 

women more than others? 

Mr. WIERMANSKI. I would say that, yes, minorities in particular 

and lower-income individuals would benefit more from full-file reporting from other— 

Mr. GREEN. Or would they also benefit from an automated alternative credit scoring system comparable to the full-file traditional 

credit scoring system? 

Mr. WIERMANSKI. From our perspective and based upon our analysis, TransUnion does accept utility information and other alternative data into our credit reporting system. So from our perspective, that information being added to a traditional credit report, not 

set outside as a different database, would actually make the credit 

processing quicker, more efficient, by having all the data in one repository. 

Mr. GREEN. So you would recommend your system to those that 

do not have a system comparable to yours? 

Mr. WIERMANSKI. That is correct. 

Mr. GREEN. All right, my time is up. I will wait for the second 

round. Thank you, Mr. Chairman. I yield back the time that I do 

not have. 

Chairman WATT. Ms. Speier, you are recognized for 5 minutes. 

Ms. SPEIER. Thank you, Mr. Chairman. 

Let me first start out by asking all of you if you are privately 

owned enterprises. 

Mr. QUINN. No. 

Mr. OLIAI. No. 

Mr. GOERSS. No, we are not. We are publicly traded. 

Mr. WIERMANSKI. TransUnion is privately held. 

Ms. SPEIER. All right. And as publicly traded—none of you are 

Government-owned or -operated, correct? 

Mr. QUINN. Yes, we are not Government-operated. 

Mr. OLIAI. We are not Government-operated. 

Mr. GOERSS. That is correct. 

Ms. SPEIER. Okay. Each of you is required, of the credit reporting 

firms, are required to offer consumers one free credit report a year, 

is that correct? 

Mr. OLIAI. That is correct. 

Mr. GOERSS. Yes, that is correct. 

Mr. WIERMANSKI. Yes, that is correct. 

Ms. SPEIER. And how much do you charge for a credit score report? 

Mr. OLIAI. At Experian, a score only, for VantageScore we charge 

$5.95. 

Mr. GOERSS. At Equifax, for FICO’s Equifax score, we charge 

$7.95. 

Mr. WIERMANSKI. I apologize. I don’t know that information, but 

I know it is included in our written testimony. 

Ms. SPEIER. All right. And the FICO score that you would get 

from Fair Isaac, how much is that? 

Mr. QUINN. Currently, $15.95 for the score and the credit report. 

We don’t deliver score only to the consumer. 

24 

Ms. SPEIER. Mr. Chairman, I raise that because it is kind of interesting. At least back in December 2004 when I went through 

this exercise, what I found was that many of these scores are what 

are called ‘‘FAKO scores,’’ not FICO scores, because they are not 

the scores that are provided to the lending institutions. So consumers may be purchasing something that they think is their FICO 

score but, in fact, is not their FICO score. 

I will just read you very quickly the example of my credit scores 

at that time. From Equifax, I got a credit report plus a FICO score 

of 750. From Experian, I got a credit report and a PlusScore of 761. 

From TransUnion, I got a credit report plus a consumer score of 

782. And then from FICO, I guess through Fair Isaac, I got a score 

of 731. So it actually varied by as much as 30 points. 

I raise this, in part, because I think the consumers of America 

should be getting a straight score. And if, in fact, the score that is 

being offered by the credit reporting companies is not the score 

that is then given to a lending institution, then the consumer is 

paying for something that is of little or no value. 

So I guess my question now is to you, as credit reporting companies, do you provide a different score to lenders? 

Mr. OLIAI. There are so many scores that lenders use to underwrite a credit decision. 

Ms. SPEIER. If you would, sir, just answer the question. Is the 

score that the consumer gets the same score that is offered to the 

lender? 

Mr. OLIAI. In the case of the VantageScore, it is. 

Ms. SPEIER. The VantageScore being? 

Mr. OLIAI. Being a commercially available score that Experian 

sells. 

Ms. SPEIER. You understand my question and are not evading it, 

I trust? 

Mr. OLIAI. No. In the case of the VantageScore, it is. We also 

offer the PlusScore, as you pulled in your own experience, which 

is more of an educational score. 

Ms. SPEIER. So the consumer typically is going to get a PlusScore 

and not the VantageScore? 

Mr. OLIAI. It depends how the consumer comes in. It is pretty 

clear on the site which one to order, whether it is the Plus or the 

VantageScore. 

Ms. SPEIER. And what is the difference in the pricing of the two? 

Mr. OLIAI. The same price, as far as I know. I would have to 

check it, but I believe it is the same price. 

Ms. SPEIER. All right. 

Next? 

Mr. GOERSS. For Equifax, we deliver the FICO score, which is a 

score that is used by lenders. We also advise consumers in the disclosure package that lenders do use a variety of scores and that the 

score we are providing may or may not be the score a particular 

lender uses in connection with their specific credit decision. 

Mr. WIERMANSKI. TransUnion provides two scores to consumers, 

two different types of scores, both of which are used by hundreds 

of lenders making millions of decisions. 

Ms. SPEIER. In California, there is a requirement that for employers who access credit scores or credit reports, that information 

25 

must be made available to the prospective employee and that the 

company, the credit reporting companies, must communicate with 

the prospective employee, so that if, in fact, they do have a credit 

report that is erroneous, they can at least make their case to the 

prospective employer when they have their interview. 

Is that the case across the country? 

Mr. GOERSS. Yes. For Equifax, when that was passed in California, we set up procedures to do that. 

And one point for Equifax is also that we do not use or sell credit 

scores with the intention that they be used in employment decisions. We have a credit file that is called our Persona Report, 

which is intended for employment purposes. It does not have age, 

it does not have account number information and other information 

which we feel is not relevant or appropriate in the employment decision. 

Also, as you know, the Fair Credit Reporting Act was amended 

to specifically change the procedures for employers using consumer 

reports. And we obtained certification from users of consumer reports or credit files for employment purposes that they do tell the 

consumer that they are ordering a credit report. If they are going 

to be taking an adverse action decision or there is a possibility that 

they might, that they, in fact, provide the prospective employee 

with a copy of that credit file so they can review it to make sure 

that it is accurate and, if they have any questions about it, can go 

back to the consumer reporting agency to have that information in 

it reinvestigated and changed, as appropriate, before any employment decision is made. 

Ms. SPEIER. Is this the policy of Experian and not Federal law 

then? 

Mr. GOERSS. This is Equifax. 

Ms. Speier. I am sorry. 

Mr. Goerss. And it is both policy and a requirement of the Federal law, as well as California law. 

Ms. SPEIER. All right. 

Mr. OLIAI. I believe our answer is that your statement is correct 

the way you said it. I would have to verify that for the record, but 

I believe that to be a true statement. 

Mr. WIERMANSKI. This area is outside my area of expertise, but 

I believe that is TransUnion’s approach. But I would certainly want 

to get back to you with the correct and full answer. 

Ms. SPEIER. Thank you, Mr. Chairman. I yield back my time. 

Chairman WATT. I am going to recognize myself for another 

round here. 

The one legislative possibility that is being discussed, has been 

bandied around some, was touched on, I think, by all three of the 

reporting agencies, or at least two of the three. You are required 

under the FACT Act to provide one free credit report annually. And 

I think both Mr. Oliai and Mr. Goerss suggested that it probably 

is not all that helpful without a score. And there is a proposal floating around to require a free annual credit score, too. 

The question is, what would be the public policy implications of 

that? And which score would you provide if you did? I am actually 

more interested in the first part of that, because I can get to the 

second question through a different question. 

26 

So how would you all react, the three of you, to a requirement 

that an annual score be provided? Or, actually, all four of you, 

since it would be a FICO score, too, I guess. 

Mr. GOERSS. That is a point I wanted to clarify. I did not mean 

to leave the impression, if I did, that a credit file disclosure is not 

important for consumers, because— 

Chairman WATT. Oh, yes, I am sure of that. But you did leave 

the impression that it would be helpful or that, for most people, 

really, it is helpful to them to have both at the same time. Isn’t 

that right? 

Mr. GOERSS. Yes, it is. I mean, as we know, the credit file is the 

information on which a score is based, so it is very important for 

consumers to review their credit file, make sure it is correct, and 

raise any questions about it so it can be reinvestigated and addressed as necessary. 

Chairman WATT. Is there some reason we should not be considering doing that? 

Mr. GOERSS. It was considered, as you know, by the Congress 

when it passed the FACT Act in 2003. And by a bipartisan margin 

at that time, Congress established the free annual credit file report. It considered score disclosure. It made score disclosure— 

Chairman WATT. That is not a good reason, that a prior Congress 

didn’t do it. Is there a good policy reason not to do it? What are 

the arguments against it? This is not a trick question. I am just— 

Mr. GOERSS. I understand. I am not trying to give you a trick answer. 

Chairman WATT. I am just trying to get some solid information 

here. 

Mr. GOERSS. One of the things that we know is that, because 

consumer scores—in our score disclosure, we provide a telephone 

number that consumers can call and speak to live representatives—that credit scoring, because consumers are learning about 

that, it is a time of education. 

Chairman WATT. So you are saying when you give a free credit 

report under the FACT Act, somebody can call and get a verbal 

score and have that explained to them for free? 

Mr. GOERSS. Under the free credit file disclosure, we have a telephone number that consumers can call and speak to a live representative. When we provide score disclosure, either along with 

credit file disclosure, there is also a telephone number that consumers can call to speak with a live representative to get their 

questions that they may have— 

Chairman WATT. You are not answering my question. I get my 

annual free report. Can I then call your company and say, ‘‘I want 

my score,’’ and have you give it to me verbally, free, with an explanation? Is what you are saying, or is that not what you are saying? 

Mr. GOERSS. At this time, no. Because we do have the score that 

is disclosed—the score disclosure provides a telephone number that 

consumers can call and speak with a representative. 

Chairman WATT. I am going to run out of time again. Let me ask 

a couple of other questions here. 

My VantageScore, interestingly enough, is the maximum you can 

get, 990. My Equifax score doesn’t even begin to approach 850, 

27 

which is the maximum. I mean, how do you explain that? I am 

having trouble reconciling that. 

And then, second, Mr. Wiermanski, in particular, I was very interested to hear you say, ‘‘I am a thin-file guy.’’ That is kind of 

counterintuitive for a guy who is here testifying on behalf of a credit reporting agency. There has to be more to the story. What is the 

reason that you have elected to be a thin-file guy? 

Okay, answer those two questions. I won’t ask any more. 

Mr. WIERMANSKI. If I can answer the first question, what is important in looking at and evaluating your credit score is not only 

understanding what that score is, but also the relative risk associated with that score. So for a VantageScore of 990—and I presume 

your other credit score from Equifax was a Fair Isaac score—what 

is used are odds of performance or a projected bad rate that is associated with the score. 

And the scores themselves are kind of like you can think of Fair 

Isaac being Fahrenheit and VantageScore being Celsius. They are 

scored differently to reflect the risk, so you will see differences in 

the absolute value of the score itself. What is relative is to understand what is the risk associated with any given score or where 

you stack up in the random distribution of the country. Think of 

it as what percentile. 

Chairman WATT. As you know, the problem I have with what you 

just said is I never have understood what Celsius meant. I know 

what it feels like when it is 60 or 70 degrees outside, but I don’t 

have a clue what that translates into in Celsius. And if you came 

to me on a regular basis and reported to me in Celsius, I guess I 

would learn it. But the problem here is that there is no understanding that people have when they get these two things. I mean, 

I got a VantageScore, I kind of stuck my chest out and said, ‘‘Hey, 

I am doing all right. I have the maximum possible score that Vantage could give me.’’ And then I got a Celsius score, and I said, I 

don’t like that. It is the same temperature outside, I presume, but 

I don’t understand it. 

Mr. WIERMANSKI. Just to reiterate, there are different scoring 

systems out there. They vary by the developer. The scoring systems 

vary by the credit bureau. So if you were to get a score from the 

same developer from all three credit bureaus, you are going to see 

differences in scores because the information is different and the 

algorithms may be different. So that is a concern. 

Chairman WATT. My time is up. I am dying to know why you are 

a thin-file guy. 

Mr. WIERMANSKI. I am thin-file person because I paid cash for 

my automobiles. I have the benefit of having a working spouse, and 

so I could pay off my mortgage early. And I only use one credit 

card. 

Chairman WATT. Have you made those decisions because you understand the intricacies and nuances of credit reporting, or have 

you made them for a whole different set of reasons? 

Mr. WIERMANSKI. I made them from a standpoint of keeping my 

life simple and just having one credit obligation. 

Chairman WATT. Okay. I appreciate your straightforwardness. 

Mr. Barrett, you are recognized for 5 minutes. 

28 

Mr. BARRETT. Thank you, Mr. Chairman. I have found out one 

thing, Mr. Chairman. You have good credit. And I have a couple 

of used cars in South Carolina that I would love to talk to you 

about. 

[Laughter] 

Just one follow-up question. 

Chairman WATT. I can’t make any inquiries, though, because it 

might mess up my credit. 

Mr. BARRETT. One question, Mr. Chairman, that I want to talk 

about. 

The chairman makes a good point, gentlemen, when he talks 

about Celsius, that he doesn’t know anything about it. Let me read 

you something. Last month’s issue of the Journal of Financial Planning said that young adults under the age of 25 are now the fastest-growing age group for filing bankruptcy. In addition, less than 

10 percent—10 percent—of our high school graduates take any 

course on money management. 

I think that boils down to what the chairman—I mean, he was 

kind of joking about Celsius, but he makes a good point. You can 

read your credit scores, you can have this information, you can talk 

about it verbally, but unless you know how to keep your life in 

order, like Mr. Wiermanski, you are going to get in trouble. 

So my question to you gentlemen is, what do we do as a Congress, what do we do as a society, to help this? There is so much 

information available out there, but yet when you talk to people on 

the street—I have town hall meetings—nobody knows how to access it, how to get this information that is free, that is readily 

available. 

Tell me what we need to do, how do we fashion something so this 

subprime problem does not turn into an ongoing problem? Any suggestions, gentlemen, please. 

Mr. OLIAI. For starters, the regular encouragement for consumers to take advantage of their annual free credit report I think 

is a great spot to begin. There is so much content and so much education out there on the Web that is available with that. Really, I 

can’t think of a time in which there has been more transparency 

along the lines of tips for how to manage your credit. And I think 

that is at least a good starting point. 

Beyond that, you know, encouraging broader outreach and education, whether it be on the part of lenders or, frankly, in the family, around how best to teach your youngsters how to keep things 

simple and keep things in check and not let things get out of hand. 

It really just strikes me as a bit of a back-to-the-basics approach. 

Mr. QUINN. I think one of the things that we have tried to do 

is change the medium for how we disseminate the information. So 

there is a plethora of information out there on the Internet, but not 

everybody learns through reading a pamphlet or going to the Internet and reading text. So, more visually oriented educational materials—we have recently created CD–ROMs and DVDs to try to help 

spread the message of how credit scoring works. If you search the 

word ‘‘FICO’’ on YouTube, there are actually rap videos that are 

out there on YouTube about FICO scores. 

But I think it is a good idea to explore different types of media 

that will resonate with the young population, for example. And it 

29 

is not going to be a piece of paper with a bunch of statistical 

mumbo-jumbo. It has to be something that they want to watch or 

read or see. 

Mr. BARRETT. In our high schools, in our 2-year institutions and 

in our 4-year institutions, we require math, English, you know, a 

whole myriad of issues. Is that something—I am not saying mandate—but is that something we certainly need to encourage with 

our K–12 and our higher-ed institutions, that maybe this is something that we need to strongly suggest that our incoming freshmen, 

our seniors in high school take, Real World 101, how to pay your 

bills, what debt-to-income ratios are, yada, yada? 

Mr. WIERMANSKI. I would agree with that. I personally speak at 

my daughters’ high schools. I have two daughters, at two different 

high schools, and I speak there twice a year at each. And I am 

amazed as to the lack of understanding just about the whole gamut 

of financial services. I personally believe that is something that 

would help. 

Mr. BARRETT. Thank you. 

I yield back, Mr. Chairman. 

Chairman WATT. Thank you. 

Mr. Cleaver, you are recognized. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I am not going to talk about the class action lawsuits against the 

three majors, because I am sure you have all been told that you 

are supposed to say, ‘‘We can’t talk about that because it is in 

court.’’ 

What I want to find out, though, is has there ever been a lawsuit 

filed on the other side? In other words, have you been sued on the 

other side by lenders for giving data that was ultimately seen as 

inaccurate and so some credit was rendered based on an inaccurate 

or inadequate information? 

Mr. WIERMANSKI. At TransUnion, to my knowledge, and I certainly could be wrong on this, but we have never been sued about 

the information, the content of the information provided to a lender. We have been sued by lenders for other reasons, but not for the 

quality of the data. 

Mr. GOERSS. For Equifax, it is not to my knowledge that we have 

been sued on that issue. 

Mr. OLIAI. I don’t know of a situation where that has happened, 

but it is not my area of expertise. 

Mr. CLEAVER. Well, the point I am trying to get to, and perhaps 

poorly, is, are you overly cautious in the information you pass on 

to lenders in order to protect, if not yourselves from class action 

suits, from criticism from the people who ultimately pay for your 

existence? 

Mr. OLIAI. At Experian, we take every protection to safeguard 

our core data. It is really our core asset, so we tend to operate very 

conservatively in that regard. 

So that is a roundabout way of saying it is something we take 

very seriously. It is part of our culture to safeguard that asset and 

to be a steward of the data. 

Mr. GOERSS. For Equifax, we want to, and feel we do, report accurate information that is fair both to the consumer as well as our 

30 

customers. And if our information wasn’t helpful to both consumers 

and customers, we wouldn’t be here today. 

Mr. CLEAVER. Okay. 

You are going to say the same thing probably. 

Mr. WIERMANSKI. Only with more emphasis on the consumer. 

Mr. CLEAVER. Okay. 

I want to talk about Zoe Alexander. That is my maternal grandmother, who was obsessed with paying bills. But based on everything I have read, she would have access to no credit, because she 

didn’t use the traditional system of doing her business. 

And there are, believe it or not, people, particularly in the urban 

core, who do that today. There are not a lot of banks in the urban 

core, which is why Charlie’s Quick Check-Cashing rip-off company 

exists, because there are no banks. And so a lot of people just take 

care of their bills with cashier’s checks and money orders. 

I mean, what is taken into account, or is there anything taken 

into account, for Zoe Alexander? 

Mr. WIERMANSKI. When we talk about the reporting of utility information and telecommunication information, that is one approach 

where your grandmother could have been assisted. 

At TransUnion, about 5 percent of our credit database has this 

type of nontraditional credit information being reported into it. And 

if utility companies and telecommunication providers, in particular, 

were encouraged to voluntarily contribute that data, I think that 

would make a big difference to the lives of many Americans. 

Mr. CLEAVER. But it would have to be voluntary. I mean, that 

doesn’t happen currently. 

Mr. WIERMANSKI. Today’s credit reporting system is a voluntary 

approach. 

Mr. CLEAVER. Yes. What I am asking is, how often are the utilities factored in in a credit score? 

Mr. WIERMANSKI. At TransUnion, if the utility information is reported, it is taken into consideration into the score. 

Mr. CLEAVER. Yes. How often is it reported? That is the point. 

Mr. WIERMANSKI. Approximately 5 percent of the consumers in 

our database have some type of information. 

Mr. CLEAVER. Okay. 

Anyone else? 

Mr. GOERSS. And for Equifax, as I indicated previously, we have 

an exchange database with utility companies, so that information 

is used in a limited way in connection with telco and utility account 

and application processes. 

Mr. CLEAVER. Of course, if that is all you have, you are still not 

going to be creditworthy. Even if you pay everything you have on 

time, but you simply have not gone out and had enough credit, you 

have not gone out and spent enough money on credit, you still are 

going to have a problem. Isn’t that right? 

Mr. GOERSS. We also have, in addition to this utility data that 

we use in a limited way, as was mentioned previously, we also 

have an arrangement with an outside third company, which is 

called RiskWise, that provides some information for individuals 

who have a thin file in the main credit reporting database or no 

file in that, and that RiskWise information is made available and 

can be used. 

31 

Now, to the extent that it would address all consumers, I am not 

prepared to speak to that at this point, at this time. 

Mr. CLEAVER. Of course I would like to have a thin file because 

it also means that I have a rich file. I mean, you know, the thinner 

my file, the richer I am. 

Mr. GOERSS. It certainly could mean that. 

Mr. CLEAVER. Yes. 

Thank you, Mr. Chairman. 

Chairman WATT. Mr. Wiermanski is taking issue with what you 

just said. He says he has a thin file and he is not rich. 

Mr. Green, you are recognized. 

Mr. GREEN. Thank you, Mr. Chairman. 

Some folks have thin files by choice and others because they 

don’t have any choice, is my assumption. Is that a fair statement, 

Mr. Wiermanski? 

Mr. WIERMANSKI. I would agree. 

Mr. GREEN. Here is what I am concerned with. I would like to 

see a system, one system, it can have these various different captions on it, but that brings in the alternative credit as well as the 

traditional credit. 

Is that something that each of you would like to see, as well? 

Would you like to have a world where we could have light bills, gas 

bills, water bills, phone bills, and rental payments all included in 

the one system? 

If you differ with me on this, would you kindly extend your hand 

into the air so that I don’t have to ask everyone? 

Okay, let’s let the record reflect that everyone would like to have 

a system wherein we can have all of the credit available included 

in the system. 

Chairman WATT. I just want the record to show that the chairman raised his hand and he has some concerns with what is being 

proposed. 

Mr. GOERSS. And I didn’t raise my hand, but— 

Mr. GREEN. Mr. Chairman, I think you started something. 

Mr. GOERSS. I would say that we would provide some additional 

information on our thoughts on that. 

Mr. GREEN. Well, I would like to hear your thoughts now, because I suppose that would give me the chance to do the follow-up 

right now. If we start exchanging letters, that could take us a 

while. 

Mr. GOERSS. Well, as I indicated previously, there is a variety of 

information that we are looking at, that all of the credit reporting 

agencies are looking at, and they need to continue to study and determine what is the best use of that information. It could well be 

to put that in the one file system, as you suggest, but there may 

also be other approaches to it. And I am just saying I am not prepared— 

Mr. GREEN. Well, right now it seems to me we have one company 

that tries to get as much of it as possible. Your company gets it, 

but you also have another way of evaluating it, and my suspicion 

is that is the same with the third company. 

But what I am trying to find out is whether we can have all of 

the information available to you so that you can use whatever formula you use, whatever standards you use, whatever asset test, 

32 

but come to a conclusion with the information immediately available. Because with the alternative credit scoring, that is a two-step 

process, it seems. And I am trying to see if there is a way for us 

to have a one-step process. 

So is a one-step process beyond the realm of probability, possibility? Is it doable? If you think that a one-step process is not doable, would you raise your hand, please? 

Okay. Now let’s let the record reflect that everybody thinks a 

one-step process is doable and that the chairman didn’t raise his 

hand so far. 

You are raising your hand? 

Mr. OLIAI. Well, it is a mini-raise. It is not all the way, but it 

is halfway. 

I think it is really an aspiration, a one-step process that you describe is an aspiration. And there are multiple perspectives that 

need to be explored. 

You know, coming from a background of one of the guys who 

likes to build the models, the statisticians, the math geeks, the 

more data you have, the better. You can never have enough data 

to try all the different quantitative approaches to predicting consumer behavior. So that one-step process appeals to my nature in 

that regard. 

Mr. GREEN. Now, one step, as I have defined it, means just acquiring all of the intelligence available, get the empirical evidence, 

and then you sort through it however you choose. But is there 

something inherently wrong with that kind of thinking, just have 

all of the empirical evidence and then come up with your own asset 

test for sifting the sand and finding the pearls? 

Mr. OLIAI. I think it is a great aspiration. I think there are some 

practical hurdles to get over, not so much on the part of a company 

like Experian, but more so on the part of the providers of that information. 

Mr. GREEN. I understand, but you would not oppose having the 

utility companies send you their information, would you? 

Mr. OLIAI. Absolutely not. 

Mr. GREEN. You would not oppose the landlord sending you his 

or her information, would you? 

Mr. OLIAI. No. 

Mr. GREEN. Okay. And if you had that information, would you 

place it into your asset test? 

Mr. OLIAI. We would look to. We would do a compliance review 

and make sure that we are covered by issues of compliance and 

consumer privacy. But— 

Mr. GREEN. Assuming it is done in the same fashion that you get 

your information from the auto dealership, that you get it from the 

mortgage company, assuming you have the same reliability standards, would you use the information? 

Mr. OLIAI. Conceivably, yes. 

Mr. GREEN. Well, why is it that you are reluctant to say ‘‘absolutely yes,’’ for my edification, please? 

Mr. OLIAI. Absolutely, yes. 

Mr. GREEN. Okay. Thank you. 

Mr. OLIAI. But, again, for the record— 

Mr. GREEN. Absolutely, however. 

33 

[Laughter] 

Mr. OLIAI. I am only here overnight. 

[Laughter] 

Mr. GREEN. You are only here overnight, but you have your boss 

forever, hopefully. 

Mr. OLIAI. Again, there are some practical hurdles that aren’t 

trivial to get over on the part of all involved. I think it is a great 

aspiration to manage to. 

Mr. GREEN. Okay, the final question is this, and you may have 

to give me the answer in writing. I would like for you to tell me 

how we can best achieve what is a vision, that the notion that we 

would have all of this information available to you, how can we 

best achieve it, or get as close to achieving it as possible, assuming 

that it can’t be done to the 100 percent standard. But I would like 

to know how we can best to achieve it. Because that really is what 

this is all about, trying to give everybody a fair opportunity to have 

a thin file if they choose to, but get the use of credit if they don’t 

choose to and they still pay their bills. 

Thank you, Mr. Chairman. I yield back. 

Chairman WATT. Were you expecting a response? 

I can give you a response. The problems are not necessarily on 

the reporting side; it is on the other side. Because with utility companies, for example, they are not normal users of the information, 

so their interest in making sure that credit scores are reliable— 

they almost have to give you a utility, right? They have a lot more 

vested interest in giving negative information than they do in giving accurate information, so you would have to deal with that. And 

a lot of these are much, much smaller providers of credit who are 

not in the habit of doing anything other than reporting negative 

credit information. So the problems are not so much—and the volume of it, if you mandated everybody to do it correctly, could be 

overwhelming. 

I raised some of those concerns in the opening statement that I 

made just before you got here. It is a great vision, but it has some 

practical concerns associated with it that are not necessarily concerns about the modeling of it, which is what these gentlemen do 

in their companies, as much as it is some of the practical concerns 

from the providers of the information. Because they are only as 

good as the information that they are provided, even if their model 

is impeccable. If the information they get is not correct, it can be 

a negative for consumers as well as a positive. 

So that was the concern I was raising my hand to express to you. 

The gentlelady from California? 

Ms. SPEIER. Thank you, Mr. Chairman. 

To all of you at the credit reporting firms, how many free credit 

reports are actually requested per year as a percentage? 

Mr. OLIAI. I don’t have the specific number. It is something that 

the CBIA, our trade association, is compiling on behalf of the industry to provide to the committee, but I don’t have the exact number with me today. 

Ms. SPEIER. Well, my sense is it is probably a very small percentage. Is that a fair assumption? 

Mr. OLIAI. I really dare not speculate. 

Ms. SPEIER. Next? 

34 

Mr. GOERSS. Similarly, we are working with our trade association to provide the information. In terms of your question, you said 

a large percent, I am not sure that I am following your question. 

You said a large percentage of? 

Ms. SPEIER. No, I am suggesting that it is probably a small percentage of American consumers who actually request their credit 

reports on a yearly basis for free. 

Mr. GOERSS. Okay. Again, I don’t have that specific information 

today. 

Ms. SPEIER. All right. 

Mr. WIERMANSKI. Again, I know that TransUnion produces tens 

of millions of free reports. We are working with our industry organization to provide that information. 

Ms. SPEIER. All right. Both Consumer Reports and U.S. PIRG, 

last year and in 2005, did studies on the number of credit reports 

that had erroneous material in them. And U.S. PIRG, in a 2005 report, suggested that 79 percent of credit reports contained errors, 

and 25 percent contained mistakes serious enough to prevent the 

individual from obtaining credit. 

So my question to all of you is, how quickly do you correct erroneous credit reports? How long does it take the average consumer 

to have their credit report corrected? And do you actually correct 

it, or do you put a note in the credit report that the consumer is 

disputing that information. 

Mr. GOERSS. In terms of—it depends on the—to go through the 

reinvestigation process, the Fair Credit Reporting Act allows 30 

days for that process to take place and for the reinvestigation to 

be completed and responded to the consumer. On average, I believe 

our reinvestigation completion times are in the 10-to-15-day range, 

and depending on the circumstances, depending on what the specific information is that is disputed, we may be able to correct it 

or address it at the time when the consumer is on the phone with 

our representative. 

Mr. WIERMANSKI. This is an area outside of my area of expertise, 

but I would believe that TransUnion provides a similar type of 

turnaround time to correct this information as Equifax has stated—certainly within the guidelines provided in the Fair Credit Reporting Act. 

Mr. OLIAI. I believe the same holds true for Experian. 

Ms. SPEIER. So it certainly would make the case that consumers 

in America should feel very confident that if they have an erroneous credit report and they submit a correction, that that is corrected within a very short period of time. 

It makes it seem like we have no problems. Excuse me for being 

a little cynical about that. 

Let me ask you about identity theft. On average, how long does 

it take an individual who has had their identity stolen to be in a 

position where their credit report is then rectified to reflect legitimately their credit? 

Mr. OLIAI. It is an area that I would have to look into and provide information back to the committee. I came more prepared to 

talk to credit scoring, per se, but we can get that information to 

you. 

Ms. SPEIER. All right. Thank you. 

35 

Mr. GOERSS. I think part of it is, that is a very—there are a lot 

of different activities that a consumer can do to protect themselves 

if they feel they are victims or might be victims of identity theft. 

Certainly one of the things that they can do is put a fraud alert 

on their credit file. They can receive a free disclosure of their credit 

file to see if there has been any inappropriate activity or inquiry 

to their credit file. They can provide an identity theft report and 

identify the account information that they feel, or that they say, 

was opened fraudulently. And under the requirements of the FACT 

Act, the consumer reporting agencies are going to delete that information; and the consumer reporting agency that receives that identity theft with information removal request is going to refer it to 

the other two consumer reporting agencies who are also going to 

remove that information. 

So beyond, I think that whole process can move relatively quickly. 

In terms of the specific timeframes, I am not prepared to address 

it. We would have to look back into that. 

Ms. SPEIER. All right. Thank you. 

I yield back. 

Chairman WATT. I thank the gentlelady for her questions. 

The Chair notes that some members have today asked and may 

hereafter have additional questions for this panel, which they may 

wish to submit in writing. Without objection, the hearing record 

will remain open for 30 days for members to submit written questions to these witnesses and to place their responses in the record. 

There are a number of things that have already been put out, but 

it would be good to get follow-up, and we will follow up specifically 

on the percentage of people who are asking for their credit reports, 

the free credit reports. 

This has been an absolutely fascinating and informative panel. 

I am sure it has helped to inform the members of the subcommittee, and the record will help to inform the members of the 

full committee. And the panel has informed the members of the 

public who have been watching on C–SPAN 3. 

So it is extremely important that we educate the public about 

some of these issues, and we thank you so much for being here 

today and helping to inform us. This panel is excused, and we will 

call forward the second panel. 

I thank these witnesses for being here today, and I will proceed 

with the brief introductions. The full, more complete information 

from your bios will be inserted into the record. 

The first witness on this panel is Mr. Clark Abrahams, chief financial architect at SAS Institute Inc., a North Carolina-based 

company, I understand, so I need to give a little shout-out to the 

home folks. 

The second witness is Dr. Michael Staten, a professor at the University of Arizona. 

The third witness is Dr. Michael Turner, president and senior 

scholar at the Political and Economic Research Council. 

And our final witness on this panel is Mr. Evan Hendricks, the 

publisher and editor of Privacy Times. 

We thank all of you for being here. As we indicated to the earlier 

panel, without objection, your entire written statements will be 

36 

made a part of the record, and each of you will be recognized for 

a 5-minute summary of your testimony. 

There is a lighting system in front of you. It goes to green initially, yellow at 4 minutes, and red at 5 minutes. Try to wrap up 

as quickly as you can after the red light goes on if you haven’t completed your testimony, but we are not trying to cut anybody off 

here. 

So, Mr. Abrahams, we thank you for being here and you are recognized for 5 minutes. 

STATEMENT OF CLARK ABRAHAMS, CHIEF FINANCIAL 

ARCHITECT, SAS INSTITUTE, INC. 

Mr. ABRAHAMS. Good afternoon, Chairman Watt, Ranking Member Barrett, and members of the subcommittee. I am Clark Abrahams, chief financial architect at SAS, a leading provider of business intelligence and analytical software. I appreciate the opportunity to provide my views on ways that we might improve our existing credit granting system. 

Credit markets are influenced by what information is made 

available and tools that are used to manage and analyze that set 

of available information. I acknowledge today’s ready access to historical information provided by the credit bureaus and the pioneering work by Fair Isaac. I have been privileged to work with all 

of them in my career. 

The road to improving the current credit system is paved with 

greater information, illuminated by proper context, and built 

through collaboration. The comprehensive credit assessment framework, or CCAF, which I developed in the course of other risk research, integrates the positives from proven lending principles and 

the current system of credit scoring. This integrated approach capitalizes on the strengths that both proven judgment and best 

science offer to provide a comprehensive and complete view of risk. 

CCAF treats a multifaceted decision-making process as exactly 

that, one that involves many factors that are interrelated. We build 

on the five ‘‘C’s’’ of credit, namely, character, capacity, capital, collateral, and conditions. Each of these primary factors is comprised 

of several rating categories that are generically termed, such as 

‘‘strong,’’ ‘‘moderate,’’ ‘‘weak,’’ or ‘‘poor.’’ 

A loan applicant is rated according to objective criteria. For capacity, these criteria might include the borrower’s debt ratio and 

savings rate. This is not an exhaustive list, but is meant to demonstrate the objectivity of the factors. 

Once the borrower is classified, he is assigned a segment number 

and that number can easily be deciphered to reveal exactly where 

he stands relative to primary qualifications. Depending upon the 

borrower’s primary givens, secondary factors or policy rules may be 

brought into play to render a final decision. 

The CCAF is also adaptive by nature, it becomes more predictive 

over time, and from the day it becomes operational, the data set 

is constantly being increased and refreshed. As such, it does not 

need to be replaced at regular intervals. 

We need to step back a bit from asking who is a predictable risk 

based on select historical facts or a lack thereof, and broaden the 

object of the exercise to ask, ‘‘Who is creditworthy and who is not?’’ 

37 

This question will drive other questions like, ‘‘Based on what?’’ One 

answer has been, ‘‘Whatever is in your credit file.’’ 

Similarly, should creditworthiness depend on how often we seek 

credit? Why should seeking credit cause greater risk? A model may 

indicate so. With any observed phenomenon, there are many supporting theories that can be posed. But theories are theories, and 

when we are trying to convince ourselves that a model is correct, 

then the theory can become all too compelling. 

If consumers make other choices such as not using installment 

credit to make major purchases, does that or should that affect 

their credit standing? Why is a ratio of revolving to installment 

credit indicative of a borrower’s willingness or ability to repay? 

Similarly, does the fact that the borrower lacks a history with credit truly suggest that such a borrower is less creditworthy? 

An obvious question for consumers is, how can they know what 

impact any particular choice they make will have? To open or close 

a credit account, or apply for a loan, or decide to pay cash rather 

than finance a purchase, or how much they utilize their credit? 

Even with full disclosure, are we to tell consumers that being financially responsible means that they need to modify their behavior so as to maximize their credit score? The point is that an individual’s creditworthiness should depend upon their ability and willingness to repay an obligation. 

CCAF primary factors guarantee that all relevant information is 

considered versus giving that power to models. 

Touching on the issue of borrowers with little or no credit history, there is data available that can be used to make reasonable 

estimates of their credit worthiness. This data is referred to as ‘‘alternative data,’’ and it will be addressed in depth by my colleague, 

Dr. Turner. 

Alternative data is crying out; we must allow it to speak. 

In the beginning, we had guiding principles in lending that related creditworthiness directly to the borrower’s ability to repay the 

loan. Then science came along and we determined that our models 

could find substitutes. CCAF revisits that fork in the road, and it 

retains reliable guiding principles while incorporating comprehensive information, including alternative data, in a single, overarching context with the best that science has to offer. 

I appreciate the opportunity to be here today and I am happy to 

take questions. 

[The prepared statement of Mr. Abrahams can be found on page 

58 of the appendix.] 

Chairman WATT. Thank you for your testimony. 

Dr. Staten, you are recognized for 5 minutes. 

STATEMENT OF DR. MICHAEL STATEN, PROFESSOR, 

UNIVERSITY OF ARIZONA 

Mr. STATEN. Thank you, Mr. Chairman, and members of the 

committee. My name is Michael Staten, and I am a professor in the 

Norton School of Family and Consumer Sciences at the University 

of Arizona and Director of the Take Charge America Institute for 

Consumer Financial Education and Research. 

38 

I have had the privilege of testifying before this committee previously over about 10 years when I was at Georgetown University. 

I am pleased to be able to join you again this afternoon. 

From the consumer standpoint, maintaining a good credit score 

is more important now than it has ever been. We know that the 

rapid escalation in loan delinquencies and foreclosures has caused 

lenders to pull back, in some cases sharply, from granting credit to 

higher-risk applicants. The widespread adoption of risk-based pricing and consumer lending means that a low credit score will cost 

you money, possibly big money in the case of mortgage and auto 

loans. 

In addition to tightening lending standards, lenders have also 

raised the bar for qualifying for the best interest rates. And we 

know, as has been pointed out earlier today, the credit score increasingly impacts consumers outside the loan markets as well. 

Landlords routinely pull credit reports and may reject apartment 

rental applications or require a higher deposit or cosigner to compensate for a lower credit score. Cell phone providers certainly pull 

credit reports on a routine basis, as do many utility companies. 

Some insurance companies and many employers do, as well. 

Consumer awareness of credit reports and the importance of 

credit scores has improved in recent years, but much education remains to be done. Again as has been mentioned earlier this afternoon, the Consumer Federation of America partnered with 

Providian and Washington Mutual Bank to sponsor a series of surveys since 2005 to track consumer knowledge of credit scores. The 

latest edition of that survey released earlier this month found that 

only half of U.S. adults had obtained their credit score within the 

past 2 years. 

Answers to other questions in the survey indicate a significant 

gap in the knowledge of how scores are used between those who 

have viewed their scores and those who have not. Overall, the survey indicates that a large portion of the population has yet to focus 

on management of their credit history and their credit score as part 

of their personal financial affairs. 

In my submitted testimony today, I have tried to make two main 

points. First, business reliance on credit reports and credit scoring 

to make decisions about financial transactions is here to stay. 

Credit scoring has proved overwhelmingly superior to manual, 

judgmental loan evaluation systems of a generation ago. Widespread adoption of credit scoring is a decision tool that has generated significant benefits for consumers and has transformed the 

U.S. consumer financial markets into the most competitive in the 

world. Because they are so useful, scoring models have been constantly improving and will continue to do so as long as financial 

institutions compete for new customers. 

My second point springs from the first. Because the use of scoring is so commonplace in financial transactions, consumers need to 

develop a better understanding of the importance of their credit 

histories and their credit scores and better awareness of their 

power to manage the components to obtain more favorable offers in 

the financial marketplace. 

Credit scoring is no longer the impenetrable black box that it 

may have appeared to consumers as recently as 2001. Even prior 

39 

to the FACT Act in 2003, the major consumer reporting agencies 

and scoring model vendors had recognized a marketing opportunity 

and began to view consumers as customers of scoring information 

products, including a host of credit score monitoring and ID theft 

alert services. 

Today, numerous Web sites, originated in both the public and 

public sectors, provide consumers advice on how to understand 

their credit reports and what goes into determining their credit 

scores. Managing a FICO score, for example, into the 700 Club has 

gained a bit of a cult following with advice flying around the Internet regarding how to manipulate account balances and manage existing accounts to tweak a score to a higher level. Yet, according 

to the Consumer Federation of America surveys, a large portion of 

U.S. borrowers still don’t understand what a credit score represents 

or the factors that determine a score. 

Far more important than coaching consumers to tweak their 

scores, it seems to me that the bigger policy challenge is to make 

a large proportion of American borrowers aware of the following 

points: 

First, failing to properly manage a credit score costs you money 

and, again, sometimes big money. Fair Isaac’s myFICO.com Web 

site provides ready examples of loan rates that correspond to various score ranges. The cost differential between low scores and 

higher scores can easily translate into hundreds of dollars per 

month in additional finance charges for larger loans such as home 

mortgages. It can also cost you opportunities for apartments, jobs, 

insurance, and similar services. Credit scores really matter. 

Second, your credit score can be managed. You don’t have to accept it passively. Your credit score reflects your decisions. Consumers have the ability to raise and lower their scores. Because 

credit scores reflect a consumer’s own past payment history and 

current use of credit, consumers can control their own score to a 

large degree, especially over time. This makes a credit score an important, but underappreciated personal financial management tool. 

Third, I would say to consumers, knowing your own score and 

knowing what lenders consider to be a good score and a poor score 

helps you shop and recognize a good offer from a bad one. 

And lastly, a consumer’s FICO and VantageScore credit scores 

are based solely on information in their credit report. So I would 

say to consumers, check your credit report periodically to see what 

is there and be sure what is there is correct. 

Thank you for the opportunity to contribute to the discussion. 

[The prepared statement of Dr. Staten can be found on page 140 

of the appendix.] 

Chairman WATT. Thank you for your testimony, Dr. Staten. 

Dr. Turner, you are recognized for 5 minutes. 

STATEMENT OF DR. MICHAEL TURNER, PRESIDENT AND SENIOR SCHOLAR, POLITICAL AND ECONOMIC RESEARCH 

COUNCIL (PERC) 

Mr. TURNER. Good afternoon, Chairman Watt, and Representative Barrett. Thank you both for the invitation to testify. 

My name is Michael Turner, and I am the president of the Political and Economic Research Council based in Chapel Hill, North 

40 

Carolina. PERC is a nonprofit, nonpartisan policy research organization that focuses on market-based economic development both in 

the United States and globally. 

As highlighted in an earlier PERC study that was presented to 

Congress in 2003, the pervasive use of automated underwriting solutions and consumer credit has yielded considerable social and 

economic benefits. However, the system is not perfect. 

Specifically, it is often difficult for consumers to enter the credit 

market. To start down that path, you can’t get credit because you 

don’t already have credit and you don’t already have credit because 

you don’t have any credit history. This is the credit catch-22 confronting many potential first-time borrowers. 

Several recent developments have started to ease that transition 

for millions of Americans. Specifically, because of the increasing 

availability and acceptance of so-called ‘‘alternative data,’’ millions 

of Americans are now facing a shortened path to entering the credit mainstream. 

Traditional consumer credit files generally include records of 

credit and payment obligations between individuals and creditors, 

typically financial organizations or retailers. ‘‘Alternative data’’ are 

other payment organizations from nonfinancial institutions that 

are generally not reported at all to credit bureaus or are underreported. Some of the more prominent alternative data sets include 

energy utility, telecoms, rental remittance, and insurance payment 

data. 

While tremendous strides have been made in making credit access both fairer and more affordable, there remain an estimated 35 

to 54 million Americans who are outside the credit mainstream 

owing to insufficient credit information about them. Because of this 

information gap, many Americans still cannot be scored. 

Without a score, the two primary means by which most Americans build assets and create wealth, homeownership, and ownership of a small business, are not attainable. In this context the lack 

of sufficient data in a credit file acts as a barrier to wealth creation, opportunity, and social and economic advancement. 

The good news, however, is that the world is changing and 

changing rapidly. The tens of millions who might otherwise have 

been left outside the mainstream are finding that payment data reported by nonfinancial organizations is thickening their files and 

increasing their attractiveness to lenders. Rigorous empirical testing by PERC and the Brookings Urban Markets Initiative yielded 

irrefutable evidence that energy and telecoms payment data are 

predictive of an individual’s credit risk. 

PERC and Brookings UMI examined a sample of over 8 million 

TransUnion credit files that contained one or more fully reported 

utility and telecoms payment tradelines. The key findings of the 

PERC Brooking UMI report are compelling. Those with thin files 

have similar risk profiles as those in the mainstream. 

Fully reporting alternative data broadens and deepens access to 

affordable mainstream sources of credit, especially for thin file and 

no file borrowers. Fully reporting energy utility and telecoms payment data reduces bad loans. More comprehensive data can improve scoring models. The problem that remains is that this data 

is not yet widely reported. 

41 

Energy utility and telecom firms have two primary direct incentives to report accurate data. The first pertains to operating costs. 

As the rate of inaccuracy rises, customer service and administrative costs to the furnisher providing the inaccurate data will also 

rise. Firms have a compelling market incentive to control costs, 

making it unlikely that any firm with a higher error rate in the 

payment data reported to a credit bureau would continue to report 

without improving accuracy. 

The second direct incentive concerns improved cash flow. According to PERC’s recent survey, energy utility and telecoms firms fully 

reporting to a credit bureau witnessed a decline in delinquencies 

and charge-offs. This reduction has a positive cash flow impact. Respondents to the forthcoming PERC survey also indicated that the 

perceived benefits from reporting outweighed costs. Reporting inaccurate data would fundamentally alter this cost-benefit equation. 

Just yesterday, PERC released a new empirical study entitled, 

‘‘You Score, You Win’’ at the National Press Club that specifically 

addresses concerns about alternative reporting data. The key findings are, there is no evidence that those who open new accounts 

after having only nonfinancial accounts become overextended. 

There is no evidence of deteriorations of credit score over time for 

those with nonfinancial payment data in credit files. No empirical 

evidence supports the notion that chronic late payers would be 

harmed by fully reporting energy utility and other payment data. 

And all evidence suggests that reporting payment data serves both 

as a consumer protection and as a wide protection. 

Congress can play a role in helping achieve this socially and economically optimal outcome. They can work to help remove statutory barriers, including the perceived prohibition on sharing positive data contained in section 222 of the Telecommunications Act 

of 1996 that some telecom firms have unfortunately interpreted as 

permitting the reporting of only negative payment data, but not 

positive payment data. 

Congress could consider passing a law permitting energy utility 

and telecoms companies to choose to report their customer payment 

data. This would remove the most significant barrier identified by 

NARUC in a State, that of regulatory uncertainty. 

Finally, Congress could use their bully pulpit to act and to exhort 

and incentivize energy utility companies to fully report. 

Thank you for this opportunity to testify. 

[The prepared statement of Dr. Turner can be found on page 153 

of the appendix.] 

Chairman WATT. Thank you for your testimony. I didn’t realize 

that you were based in North Carolina, too. I should have given 

you a shout-out, as well. 

Mr. Hendricks, you are recognized for 5 minutes. 

STATEMENT OF EVAN HENDRICKS, PUBLISHER AND EDITOR, 

PRIVACY TIMES 

Mr. HENDRICKS. Thanks you, Chairman Watt, Ranking Member 

Barrett, and members of the committee for the invitation. My name 

is Evan Hendricks, and I am in my 28th year of publishing a newsletter called Privacy Times. 

42 

I have been in Washington a long time. And I am also the author 

of a book called, ‘‘Credit Scores and Credit Reports: How This System Really Works, What You Can Do.’’ And in the spirit of the 

book, I will try and speak on behalf of the millions of consumers 

who all have credit reports, either full files or thin files. 

Mr. Chairman, you have planted a very powerful seed today, and 

that is the idea that we should be entitled to one free credit score 

per year. I think the answer to your question, is there a policy reason not to do that, is, no, there is no good reason not to do it. We 

should do it. To do it right, we have to seriously understand how 

the system works, and we have to talk about what I am calling the 

‘‘secret sauce,’’ and we will get to that in a minute; but to make 

this a meaningful score for consumers, there is a secret sauce in 

the system that we have to deal with. 

Now, right now, you take it for granted that we know about credit scores. But you have to remember what it was like 12 years ago 

in the mid-1990’s when credit scores started being widely used. 

They were a complete secret; the industry did not even acknowledge their existence. Then, when they found out about it and reporters like Michelle Singletary of the Washington Post started reporting on it, then they would not disclose the score to you. 

Then California led the way with a State law, and now we have 

the FACT Act, which means that you can get one, you can buy a 

credit score for a fair and reasonable price. 

Mr. Chairman and Congresswoman Speier put their finger on 

some very important problems, first, the problem that they are selling knock-off scores, or FAKO scores, ones that are not used by 

lenders. And so consumers are paying for scores. And we have lots 

of anecdotal situations where this consumer tries to be educated, 

they buy their score, they go out there; and then when they apply 

for credit, they find their score is much lower and so they are in 

a very disadvantaged situation. 

And, Mr. Chairman, the Fahrenheit versus Celsius problem is a 

very real problem because the industry has created a very confusing situation here because we have the standard FICO score, 

which is used by about 75 percent of the lenders, that is the one 

most widely used. And then they sell you the PLUS score, and the 

TrueCredit, or TransRisk score, has a range that goes up to 950; 

the VantageScore, which all three have created, goes up to 990. 

And there is very little evidence of market penetration by those 

scores, and I hope that they produce some numbers on that. 

But I think maybe, probably the most profound problem is that 

as far as we have come, consumers cannot buy or get access to the 

actual score on which they are judged. 

Let’s use the mortgage setting as an example of this. When you 

apply for a mortgage, the broker, the lender, goes to a reseller, they 

pull a Tri-Merge report—your TransUnion, your Equifax, and your 

Experian—and they merge them into one report, and you get three 

FICO scores, one from each bureau. And those are the ones you are 

really judged on. So even when you are buying a FICO score from 

Equifax, the one you are being judged on is probably based on a 

different model. The ones you buy for yourself can give you a good 

idea, but there can also be significant differences. 

43 

So when we are talking about consumers really understanding 

where they stand, we need consumers to have access to those 

scores and also access to those Tri-merge reports. 

Now, the reasons that those are a subscriber version of the reports, those are the most meaningful version of the reports; and I 

will explain a difference here in the minute that I have left. 

Right now, consumers cannot get access to those reports because 

the resellers that compile them are barred by contracts from showing them to the consumer. Now, in the FACT Act it used to be they 

could not show the consumer anything after the fact. The FACT 

Act already changed that, so after the fact they can show you. 

Now we need to make it so consumers can see this information 

before they apply for credit. The reason this is important is that 

they also use algorithms to decide what information goes in your 

report when you apply for credit versus when you get your own. 

When you ask for your own report, they use very precise algorithms to make sure that information really deals with you. But 

when they are selling a report about you to a creditor, they use 

looser, partial-matching algorithms, so if something might relate to 

you, they are going to make sure it is included on that report because they don’t want to miss out on anything. 

Instead of maximum possible information—or accuracy really is 

maximum possible information—those are the reports that consumers need to get access to; and these resellers, the network of 

resellers, is a wonderful place to start. Including getting scores that 

are meaningful, we just have to override those contracts through 

national policy and bring more transparency and fairness to the 

system. 

Thank you. I yield back the rest of my time that I don’t have either. 

[The prepared statement of Mr. Hendricks can be found on page 

119 of the appendix.] 

Chairman WATT. Thank you so much. 

And I thank all of the witnesses. 

The members of the subcommittee who have been here have been 

absolutely diligent, and they have been here throughout. So I am 

going to reward them by going last in my questions to this panel, 

since I have to be here anyway, and some of them may, because 

we went two rounds, have other competing appointments. 

So, Mr. Cleaver, I am going to recognize you first for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I want to go back to the issues I raised with the previous panel. 

And one of the questions that I raised—I am just curious as to 

whether or not any of you would have a different response—and 

that is, is there a correlation between the place of residence and 

credit scores? 

And, specifically, I think my question is, in areas of high minority concentration, the study I have suggests that they have worstever scores. And if credit scores have a disproportionate impact on 

residents in communities with high minority concentrations, what 

other socioeconomic factors might account for this reality? 

Mr. HENDRICKS. Well, I am familiar with the Missouri study, and 

I think it is a very useful study, though its controversial. Industry 

doesn’t like it. 

44 

Mr. CLEAVER. Well, yes. 

Mr. HENDRICKS. But it showed that there was disadvantaged 

credit scores in disadvantaged communities. And I think that is— 

you know, I compare credit scoring—I agree with Professor Staten, 

it is something that is here to stay, so I think we have to understand and deal with it. 

But it is a lot like SAT scores. SAT scores are sort of a test created by a circle of people which is meant to measure a certain kind 

of skill. And the credit scoring system is kind of the same way. 

And so there are people who are extremely responsible in paying 

their bills, but if they are not plugged into our surveillance system 

of credit, then they don’t get the credit in terms of a good credit 

history and good score. 

And so if you have a thin file and then you also have a late payment on top of it, then it is a double whammy that sends your 

score down more because part of your score is based on good news, 

and if you are a disadvantaged community, it is much harder to 

build up the history of good news that will give you a buffer in case 

the bad news comes. 

So that is why I think it is a useful study. 

Mr. CLEAVER. Do minorities and poor folks have worse credit 

scores regardless of the geography? 

Mr. HENDRICKS. I don’t know. I think the actual research shows 

that there are people from disadvantaged communities who have 

good credit scores, too. But that means that they basically play by 

the rules of that system of building credit, avoiding late payments, 

not maxing out their credit cards. 

That is kind of a tall order in today’s society, though; and so I 

think you are going to see falling median levels of the population’s 

credit scores. 

But I think clearly we need especially targeted presence in programs and education. Because now getting credit is going to be imperative to any sort of social mobility, and so people have to understand how the system works and how they can use it or find the 

alternative system that will give them a chance. 

Mr. CLEAVER. Well, ‘‘alternative system,’’ I am glad you mentioned those words. Why do we have, essentially, three credit rating agencies? 

Mr. HENDRICKS. That was a result of business evolution. We 

used to have five major ones, and merger and acquisition made it 

so we have the three that we have today. 

Mr. CLEAVER. Do we need more than three, or is there a reason 

to make some adjustments in the three we have that would allow 

the underserved communities to have greater access to credit? 

Mr. TURNER. If I could respond to that, the national credit reporting system certainly is an evolving system; and as I mentioned 

in my oral statement and in my written prepared statement, the 

phenomenon of automated underwriting has absolutely, by every 

measure, made lending broader and deeper and fairer. And as I 

also mentioned, it is not perfect. 

And, of course, I was asked to speak about the promise of nontraditional or alternative data; and I actually agree wholeheartedly 

with Evan’s observation that having this data reported in greater 

volumes would actually help mitigate the adverse consequences of 

45 

a negative in a delinquency or default for thin and—well, for thin 

file, particularly, individuals. 

So the system is evolving. You have seen niche players move into 

this market. Four years ago you could probably count the number 

of them on one hand. PRBC was a pioneer. Now we have link-tocredit, Experian, Equifax—or Experian and TransUnion are certainly making great strides in this. But it is a slow process. 

We have worked on the demand side. The study that PERC provided actually brought lenders and the bureaus together to understand the payoff for using alternative data for risk assessment. The 

issue now is that we have to make a business value proposition to 

energy utility and telecoms firms to report the data because they 

absorb very real costs under the Fair Credit Reporting Act in terms 

of data furnisher obligations. 

We have a forthcoming study. We have surveyed a large number 

of energy utility and telecoms companies with the American Gas 

Association, the Edison Electric Institute, TransUnion, and 

Experian. We will be providing those results in the next quarter. 

But it is a challenge. Our hope is to realize that aspiration. So 

it is an evolving system, and I think strides are being made. 

Mr. HENDRICKS. And I think the answer to your question too is, 

the credit reporting system is basically built to collect the information behind your back and then the information surfaces when you 

try and make a credit move. In other words, it is sort of a ‘‘gotcha’’ 

system. 

So one policy or goal would be to have one credit reporting agency that would be more a consumer-facing reporting agency. And I 

think Dr. Turner has cited pay rent—you know, PRBC is one 

where it is an opt-in approach—and others. So I think we do need 

alternatives, and we need to have it so consumers are plugged into 

their own information as much as all those thousands of creditors 

are plugged into it. 

Mr. CLEAVER. Mr. Chairman, one of my hopes is that some time 

later we will have another hearing. But I certainly would love to 

have an opportunity to read the study that Dr. Turner spoke of 

that will come out in the next quarter. 

Mr. TURNER. We would also be happy to provide, if you are interested for the record, our report from just yesterday that empirically 

speaks to some of these questions as well. 

Mr. CLEAVER. Yes, I am very interested. 

Thank you, Mr. Chairman. 

Chairman WATT. We certainly would welcome that report. 

And for the gentleman’s information, I don’t think there is any 

anticipation that there will be any legislative moves on this issue 

this year. So we have a period of time to get forward-looking information that is in process now. 

Mr. Barrett is recognized for 5 minutes. 

Mr. BARRETT. Thank you, Mr. Chairman. Drs. Staten and Turner, can you kind of elaborate on the effect of credit scores on our 

senior citizen population? 

Mr. STATEN. Well, it basically has the same effect as it does for 

the rest of the population. It is built on past experience, experience 

with credit, repayment of credit. There isn’t any particular bias in 

the credit scoring models with respect to senior citizens; and in 

46 

fact, if anything, the Federal Reserve Board’s study last year suggested that if there is an age bias at all built into the standard 

scoring models, it tends to look at files and take time on file as an 

indication of or a proxy for age. Senior citizens who have used credit in the past probably have a very long time on file, and it probably counts very much to their advantage. 

Mr. ABRAHAMS. I would offer that actually in cases where there 

is loss of a loved one and the major spouse who had the credit history passes on, then the widow or widower may experience some 

issue there. So that would be a factor. 

Mr. TURNER. And I would add to that, in fact, one of the key 

findings from our previous studies with Brookings UMI was, a significant number of above-66 individuals who had a thin file. And 

so we see, actually, great promise in having the energy utility and 

telecoms payment data in assisting elderly individuals who, in fact, 

as Clark notes, we have an increased incidence of late-stage divorce 

and the widow-widower effect. 

And our actual numbers were corroborated by another study 

done by one of our supporters for that study, which was GE Money, 

and they came up with almost the exact same percentage. So there 

is an issue that we think alternative data reporting can actually 

help resolve. 

Mr. BARRETT. And, Dr. Turner, while I have you on the line here, 

I know that we have talked about credit scores, and there is a lot 

of hemming and hawing about whether it is the right thing, or factors we take into it. But out of all the findings that we have seen, 

would you agree that, using some type of scoring system, you get 

the most accurate predictor of risk, fairness, affordability, the 

whole 9 yards of any system that is out there today? 

Mr. TURNER. Well, again, we have advocated as part of our alternative data initiative having data reported directly to credit bureaus and consumer reporting agencies. 

I think—and if I understood correctly the one system that Representative Green alluded to—that has been our stated objective. 

We think that is very efficient. 

TransUnion has been on that path for a long time. Certainly, 

Experian and all the bureaus are looking at that at this point. 

Mr. BARRETT. And the last thing I want to—Mr. Chairman, we 

have talked about—Mr. Hendricks brings up some very wonderful 

points, but isn’t the key for the consumer education—I mean, didn’t 

he or she need to know all there is no know about the scores, how 

they are obtained, how it affects them? 

And again, let me pose this same question to you guys. I know 

you all heard it all from the first panel, how, as much as is out 

there, so many people still don’t understand what is going on. How 

do we impart that information to the average citizen? 

Mr. HENDRICKS. Well, it has to be a multifront attack, and I have 

written a book; you are holding a hearing, you passed the FACT 

Act. All these things have contributed to it. 

Again, in my 30 years following this, I am still optimistic because, again, 12 years ago, they weren’t even acknowledging there 

were credit scores. Now we are deciding between which color is 

best and which best serves consumers. 

47 

So I think the idea that—like the State attorneys general have 

gone around their State holding identity theft things which relate 

to credit scores, the 13-Town Tour. You are talking about going to 

your community at teleconferences with your community. I think it 

is like giving it every chance we get and, you know, a concerted 

push. 

There is supposed to be a financial literacy push as part of the 

2003 FACT Act. I don’t think that has the aspirations that it is 

supposed to. But I think, now it is not just interesting, it is vital 

for people. 

So I think in terms it is worth public policy, it is worth resources 

to go into our communities, starting with the high schools, and 

really make a concerted effort that this is pocketbook stuff and people need to understand it. 

Mr. BARRETT. Absolutely. Thank you gentlemen. 

I yield back, Mr. Chairman. 

Chairman WATT. I thank the gentleman. I am going to report to 

my ranking member that he should have a substitute for him all 

the time. 

The gentleman from Texas, Mr. Green, is recognized. 

Mr. GREEN. Thank you again, Mr. Chairman. Let’s start with 

Mr. Abrahams. 

Sir, you have seemed to intimate, if not state, that a comprehensive system, while not necessarily perfect, is still a better system 

on balance than what we have currently if you want to extend 

credit fairly to everyone. 

Is that a fair statement? 

Mr. ABRAHAMS. I would say that is a fair statement, yes. 

Mr. GREEN. And you have heard some of the indications about 

information collected about utilities and landlords and persons who 

are without what we will call the ‘‘traditional reporting system.’’ 

How is it that your standard or your asset test, this equation 

that you have developed, how is it that it can tweak the process 

such that you get results that are consistent? 

Mr. ABRAHAMS. It would first classify the borrower or the loan 

applicant. So we talked about the Celsius and the Fahrenheit. That 

is because the credit score is an odds quote. That is what a credit 

score is. We are not giving the consumer—we are not giving the 

consumer the scale, but we are giving him the odds, if you will. 

I am advocating a system where we would have a classification 

to the consumer that would be decipherable, so you would know 

precisely what your position was relative to the primary factors of 

the loan decision. And it is much more difficult and challenging for 

score card developers to provide that kind of information because 

of the secret recipe. 

Mr. GREEN. And, Mr. Turner, you gave some information concerning this as well. It seems to me that you are of the opinion that 

reporting all of this information as much as possible makes sense. 

Is that a fair statement? 

Mr. TURNER. It is a fair statement, but I would recognize the 

chairman’s caveat that there are certainly going to be road bumps 

along the way. 

Mr. GREEN. Is there a means, a methodology, by which the road 

bumps, while they are there, they can still be factored into the 

48 

equation and you can still service people who have only nontraditional credit? 

Mr. TURNER. Well, I think the market is responding. I think you 

are seeing, in fact, a number of models that rely heavily on nontraditional data for credit positioning purposes. And certainly to 

the extent that the volume increases— 

Mr. GREEN. I am going to take it from your answer, that is ‘‘yes.’’ 

Mr. TURNER. Yes. 

Mr. GREEN. Okay. Just so that I can move on, must you report 

to the agency to benefit from the information that the agency has? 

For example, if I am a landlord and I would like to use credit information, do I have to report information to the agency to use the 

information that I can receive? 

Is there reciprocity involved in this process, is what I am asking. 

Mr. TURNER. Well, there are a number of alternatives available 

right now, and some emerging. 

Actually, we are working currently with TransUnion’s rental 

screening services and testing the validity of using rental payment 

data and credit risk assessment. Similarly, with a group in Atlanta, a rent bureau. This data is just being collected now; it just 

really didn’t exist in numbers before. 

But also pay rental credit has an opportunity for individuals to 

work through lenders to have lenders report payment data to a 

third party to make credit decisions as well. 

So there are a number of different alternatives. 

Mr. GREEN. You indicated earlier that more and more landlords 

and nontraditional users are now starting to use these scores, correct? 

Mr. TURNER. That is correct. 

Mr. GREEN. If they are using the scores, is that a means by 

which we can induce them to also present information that is accurate? 

I am trying to find a means by which we can inculcate them into 

the process without making it mandatory. If you want to benefit 

from it, let’s have some reciprocity of participation from you is 

what I am leaning toward. 

Mr. TURNER. I would suggest—again, I think that TransUnion 

would be better situated to talk about their standards on this. But 

clearly, all the bureaus have data quality standards for taking in 

new data. 

It is not just that you may report and the bureaus have to take 

it. There are certain standards for quality that are in place already. 

And I think that there are a number of low-hanging fruit, particularly among the energy utility and telecoms firms that are very 

large, have sophisticated databases and billing cycles and can report very high quality data that is verifiably accurate. 

Mr. GREEN. I understand. 

It seems to me—and I will come to you in just a moment, Mr. 

Hendricks, because I am interested in what you have to say. But 

it seems to me that if more and more companies are moving toward 

these scores and they are utilizing these scores, if we can encourage them to not only benefit from the score, but also to have reason 

to participate in the process by virtue of benefiting from the score, 

we can inculcate them. 

49 

Is there something in that logic that I need to better understand? 

Mr. TURNER. No. I agree, and that is what we are trying to show. 

We are trying to basically show the business value to prospective 

furnishers from reporting; and that is what will get the buy-in into 

the system and why they will report accurate data. 

Mr. GREEN. Mr. Hendricks. 

Mr. HENDRICKS. I wanted to answer your question. 

Right now, there is not really reciprocity. Even the Act defines 

that there are furnishers of information to the credit reporting 

agencies, and then there are users; and you don’t have to be a furnisher to be a user. 

I think the way to go is to let this be a consumer-driven thing 

to the extent that to have—let’s say, as an example, the utility 

company—they can tell their customers, we can report data about 

you to consumer reporting agencies if you opt into this. If you do, 

these are the benefits that are going to be. 

The problem, if we did this en masse, top down, is that we have 

gone decades and decades where people don’t expect information on 

utilities to be reported to credit reporting agencies. So if there are 

people who generally pay on time, but had a few late payments, 

but had a thin file, then all of a sudden that is going to hurt them 

rather than help them. 

Mr. GREEN. Because my time is up, let me share this. I think I 

comprehend what you are saying. You are saying that this is an 

evolutionary process, and it may metamorphose into something 

comparable to what we are talking about. 

But, listen, one more thing before we leave this. I am concerned 

about those who are left out of the process, and that is what all 

my questions have been leading to. 

How do I get them, those who really do pay bills, but don’t have 

this traditional credit, how can they benefit from credit? Because 

you made it transpicuously clear that it pays to have good credit. 

I mean, you save money, you can then have wealth-building by 

some other means. That is the concern that I am trying as best as 

I can to extract from you: How do we get to this point where we 

can do this? 

And I think I am hearing you say ‘‘comprehensive’’—that is the 

term you used—comprehensive reporting makes a difference. You 

can’t compel it, but there may be a way to entice it. Is that a fair 

statement? Does anybody differ with me on that, don’t compel but 

entice? 

And before I yield back, what do you perceive to be the most efficacious methodology for enticement? 

Mr. TURNER. We would encourage clarification on section 222 of 

TA-96 and permit—pass a law that permits utility companies and 

telecoms firms to report payment data to bureaus and CRAs. 

There is a lot of regulatory uncertainty in the States. There are 

utility companies that want to report that have been told ‘‘no’’ by 

their PUC or PSC despite the fact that there is no statutory prohibition. And we found out that many regulators believe that this 

data will be used for marketing, which is incorrect because the 

FCRA explicitly prohibits that. So there is an issue of regulator uncertainty. 

50 

There are States right now—we are working in California and we 

are working in Illinois—there is a great interest in California and 

a great interest in Illinois in doing something legislatively or 

regulatorily that will promote this reporting. 

Mr. GREEN. Mr. Chairman, I don’t know if this is something that 

is already being reviewed by a committee member or someone else. 

But if it is appropriate, perhaps my office can work with the good 

offices of Mr. Turner and try to craft some language. 

Now, I am not sure that we are the committee of jurisdiction for 

that. 

Chairman WATT. We are not the committee of jurisdiction. And 

the gentleman may be surprised to know that he is the leader on 

this issue. You really are. I mean, I think perhaps you and Mr. 

Castle have probably taken more leadership on the issue of alternative data than anybody else on the committee or the subcommittee. 

So it was through your efforts that we made that a part of the 

hearing today, in fact, at your urging and Mr. Castle’s urging. And 

I am glad we did because my initial inclination was not to, because 

I thought it was a sufficiently different subject that would just confuse people. 

I think it has really been an enlightening discussion, and I would 

encourage you, as we develop questions, follow-up questions, to 

submit in writing to this panel and the earlier panel to aggressively think through some of the issues that you have put out 

there; and let’s build a record on it. We won’t be the legislating 

subcommittee, but our whole purpose is to build a legislative record 

for the committee of jurisdiction, the subcommittee of jurisdiction, 

or the full committee, to act on this. 

So this is the place to do it, and you are the leader on it, whether 

you know it or not. Whether you like it or not, you are the leader 

on it. 

Mr. GREEN. Thank you, Mr. Chairman. Sometimes I am better 

than I realize I am. Thank you. 

Chairman WATT. You just don’t know what your power is. 

Mr. GREEN. Mr. Chairman, if I may ask unanimous consent to 

give a quick response? 

I am more concerned about—section 222 of the Telecom Act of 

1996 is what I think was referred to. I am not sure that Financial 

Services is the committee of jurisdiction to deal with an amendment. 

Chairman WATT. It sounds like, from Dr. Turner’s response, that 

there is no real—that the problem is a lack of clarity. There is not 

a directive that says they cannot do it; it is just that a number of 

them have found it in their interest not to do it, and they are using 

the lack of clarity to hide behind, as I understand it. 

Is that correct, Dr. Turner? 

Mr. TURNER. Actually, in this case, there was a major telecom 

firm that did fully report to all three bureaus. But internal counsel 

conservatively interpreted the FCRA carve-out in section 222, because the prevailing practice at the time was reporting only negative data, and they felt they could be exposing themselves to class 

action litigation for being in violation of Federal law. 

51 

Chairman WATT. And that is one of the concerns that has been 

raised about it. Unless you put some parameters around it, only 

the negative data that will adversely impact people’s credit, not the 

positive data that will enhance their ability to get credit, will be 

reported. 

And in response to Mr. Hendricks’ comment, one concern about 

an opt-in or opt-out approach has been if you opt out, certain lenders will view that as an indication that you are admitting that your 

credit was bad, and they will use that against you. So I mean, you 

kind of meet yourself here coming and going. 

But I think you have to pursue it because you and Mr. Castle 

are the—I am not just humoring you publicly here—you are the 

leaders on this issue. 

Mr. GREEN. Thank you, Mr. Chairman. 

Chairman WATT. The gentlelady from California is recognized for 

5 minutes. 

Ms. SPEIER. Thank you, Mr. Chairman. 

And thank you to our panel, and a special hello to Evan Hendricks with whom I have had the pleasure of working over a number of years. 

I am going to share, Mr. Chairman, my bias. We call these credit 

reporting agencies or credit bureaus, which gives the average consumer the impression that they are dealing with some Federal entity, when in fact they are not. We heard this afternoon they are 

privately or publicly traded companies. 

And yet this information is so critical, and to Mr. Barrett’s comments, who suggested that the consumer needs to be educated, 

needs to know what goes into their FICO score and what they can 

do to improve their FICO score, we can’t give those kinds of answers because, for all intents and purposes, it is a proprietary formula. It is sort of like a secret sauce; we don’t know what it is. 

Now, there is something wrong when the government can’t articulate what should be considered in a FICO score. I mean, the 

fact that we are talking about enticing these bureaus or agencies 

to include alternative information is, I think, pretty weak. And I 

hope, Mr. Green, you will make it compulsory, because I think that 

is part of what we should be looking at, a complete picture. 

Based on what has been said here, more companies are coming 

into the market, which means we will have more FICO numbers, 

not fewer; that consumers are going to be buying numbers that 

may or may not be the numbers that are being used by their lenders; that, in effect, over the long-term we are going to have more 

subjectivity as to who gets what premium or who gets what mortgage at what interest rate because these numbers aren’t the same 

for everyone based on a specific set of indices that are used. 

So here is my question, and let me start with Professor Staten. 

We will have, it is anticipated, 5 million Americans who will be 

foreclosed on in a very short period of time. What are we going to 

say to them if, in fact, they were lured into a loan that was a 

subprime loan when they were really eligible for a more traditional 

loan and they are upside down? What are we going to tell them? 

What are all of us going to tell them in terms of how they are going 

to improve their FICO score? 

52 

Second scenario—and this will be a question to you to start off 

with and then to everyone else, because the second scenario is why 

I am particularly talking to you. I have a son who is about to be 

a junior in college, he goes to a great university, and is a smart 

kid. Literally last week, he sent me an e-mail, ‘‘Mom, I just found 

out that I have a FICO score of 600.’’ And it was because when he 

opened up his checking account at a very prominent national bank 

they automatically gave him a credit card. He didn’t know it was 

a credit card because kids mostly deal in debit cards. So he is using 

his debit card and, I guess, used this credit card in addition; and 

over the course of 3 months, he didn’t pay in a timely manner and 

he now has a 600 FICO score. 

What are we doing about all these young people who are lured 

into all kinds of products on the college campuses and who start 

out in life with lousy credit scores, because we are complicit in creating an environment where they exceed what they should be entering into? 

So that is kind of a two-part question. I will start with you, Mr. 

Staten, and then I would like all of you to answer. 

Mr. STATEN. Sure. I think we start by teaching them to pay their 

bills. 

I am going to trade you another story. I taught a class in retail 

financial services at the University of Arizona this last semester. 

I asked all my students, as a matter of course, to pull their credit 

report. 

I had one student who apparently didn’t. At the end of the semester, he got a job, went to California, and was trying to look for 

an apartment. At that point, the landlord pulled the credit report 

and found that he has, despite having three bank cards, that by his 

admission that he has paid very well, he had a FICO score of about 

560. Reason? He had collection activity that came from the Tucson 

Police Department because he had gotten several traffic violations 

that he had failed to pay—just ignored them, swept them under 

the rug. 

I suspect that is not an uncommon thing that happens to young 

people. 

It doesn’t matter what the bill is, whether it is a credit card bill 

or a loan payment or a utility bill or a cable bill or a traffic ticket, 

young people have to understand that when they don’t pay, there 

is a consequence; and that consequence comes forward in a lender’s 

evaluation of their past payment history. Whether it is through 

their credit score or whether it is through pulling the credit report 

without the score, the lender is going to see that, to the extent that 

it is reflected in the credit report. 

And I don’t think young people fully appreciate how sloppy payment in the past has major implications for them, not just in getting credit and pricing credit, but in finding an apartment and 

doing other things. 

It is a matter of education. We have to teach them that it matters, that it is important, that it can cost them; and then how to 

manage it. 

Ms. SPEIER. And the answer to the first question? 

Mr. STATEN. I have forgotten now what the first question was. 

Ms. SPEIER. The 5 million Americans— 

53 

Mr. STATEN. I think you have raised another issue there in terms 

of the suggestion that some of them were duped into mortgages 

they couldn’t afford. The fact is, now they are in a mess and they 

are stuck with a foreclosure on their record. 

It will go away over time; we do know that after 7 years the 

thing drops off, and in fact more quickly than that, it has less impact on the credit score. How much impact it has is going to be a 

function of how much other credit they actually have, how much 

positive experience that they have been able to amass. 

But that is about the best answer I can give you on that point. 

Mr. ABRAHAMS. If I could go next, I would like to say that I 

think, from some of the statistics that I have heard, it takes them 

11 years for, I think, a white non-Hispanic and maybe 14 years for 

an African-American borrower who has had to go through the foreclosure process before they can get on their feet again. So—there 

is a period of time before one has the capital to recover to approach 

homeownership, so it is a pretty severe problem. 

The system that I am advocating would have determined from 

the get-go vulnerability that there was a product that would put 

at risk the affordability. And, secondly, just the concentrations, 

that the amount of concentration and the degree of concentration 

in certain borrower segments would be surfaced immediately, we 

are doing a lot of this product of people who are living paycheckto-paycheck, have no savings, bought a home that was 3 times 

their annual salary, had 10 percent down. It is the perfect storm 

that you don’t see when you are looking at all these things individually, but when you put them all together it paints a pretty compelling picture. 

So I am not suggesting that CCAF would have prevented a 

subprime crisis. There are a lot of factors that went into that. But 

I do believe that a comprehensive approach would have been more 

helpful. 

And as for the student, I was a student. I remember when I was 

at Stanford, I got my first Bank of America card back in 1974. And 

I was encouraged to get some credit, use it, let it revolve, don’t pay 

it all off, let it revolve a little bit and then pay it and get established. 

My point would be, if we have alternative data, if we could also 

track savings records—and we have to be creative about it, but 

other means of sourcing information outside of just credit usage, 

that one can be qualified, I think that would be helpful. 

Mr. TURNER. In terms of your first question, we are actually in 

discussions right now with the Governor’s office in the State of 

Ohio to analyze the efficacy of the Ohio Compact, which is an 

agreement between nine large lenders in Ohio, in the State of Ohio, 

about certain practices designed to effectively minimize the probability of moving folks from homeownership to foreclosure. And this 

model is being considered in other States. We want to operate in 

fact and know whether or not this is making a difference. So we 

would be happy to report those results. 

I don’t know what I would tell consumers who have been foreclosed or are facing foreclosure. But certainly, we would like to look 

at solutions and viable solutions. 

That is what I will offer. 

54 

Mr. HENDRICKS. And I think, Congresswoman Speier, that where 

this committee can start is people have to know where they stand; 

and right now we are only halfway there in terms of seeing the actual scores on which they are judged and seeing the actual data 

that is in their subscriber version reports. We have to start there, 

because until you know where you stand, you don’t know what you 

need to do next to get there. 

But this goes back to our discussion with Congressman Barrett 

that we need a massive effort going into the communities to get 

people more financially literate on these issues because now it is 

not just interesting, it is crucial. 

Chairman WATT. The gentlelady’s time has expired. 

I will just make one point as a reminder to the members who 

participated in the insurance scoring hearing that this is not 

unconnected, because once you get a 500 score on your FICO for 

credit purposes, you also have driven up your insurance rates because, remember, we were all troubled by that. 

So this is not only credit, this is insurance. There is a transferability here. 

The second point I would make, and I know you all want to, 

there is a big caucus that is getting ready to convene very shortly, 

the Democratic Caucus, so the members have to leave. It seems to 

me, with these 5 million people, Representative Speier, we may end 

up having to grade on the curve at some point. Otherwise, I don’t 

know how you are going to go forward extending credit to people 

who, but for having gotten into these kind of mortgages that they 

really couldn’t afford, would have reasonably good credit. 

So, anyway, I didn’t get a chance to ask questions. I am concerned—well, I am going to stay long enough to ask my questions, 

but you all feel free to leave, which is why I decided to go last, because I knew you all had given at the office today, beyond the call 

of commitment, and I definitely appreciate it. 

Mr. Abrahams, the concern I have about your approach—and I 

want you to convince me that I am wrong about it—is that it seems 

to inject more subjectivity into it. There will be a category of people 

for whom your approach would be a lot fairer, but I think there 

would be some concern about the level of subjectivity that is injected into the process. 

And that would be a concern that I think Representative Cleaver 

would have. So if you can address that quickly, that would be helpful, I think, to him and to me. 

Mr. ABRAHAMS. Thank you, Chairman Watt. 

What we are advocating is not going back to the old method of 

every loan officer is a system. We are talking about systematic policy application, proven principles that are understandable, that are 

the basis for how people would want to responsibly handle their financial affairs. 

I am talking absolutely connected to, that we didn’t reinvent the 

wheel of the five ‘‘C’s’’ of credit. And the character part deals more 

with just your payment history, which are capacity and your capital. And so the idea is that this would not be anything like pulling 

out of the air; it would be proven and it would be accepted and it 

would be well-documented and consistently applied. It would be 

more consistent than credit scoring because credit scoring today 

55 

has overrides after the fact, anywhere from 5 to 10 percent overrides on the low side and sometimes 10 to 15 percent on the high 

side. So we say we have this great score but then other things come 

into play. 

I don’t dispute that those are not correct decisions, but this 

method brings all that together in one at the same time and renders a decision without first creating a score. It first classifies, then 

risk rates; it doesn’t risk rate and then classifies. So I think we 

have that a little bit turned around in the way we are doing things 

today. 

I hope that is helpful. But the idea is that the judgment is systematically applied. And it is not an individual’s judgment; this 

would be a corporate judgment. 

Chairman WATT. I think I am going to withhold the rest of my 

questions, and just submit them in writing. 

Let me, while I have somebody here who could object if they 

chose to, ask unanimous consent to submit for the record the Federal Reserve’s response to a list of questions that we asked them 

to address, that we thought we would have at the beginning of the 

hearing. It hadn’t gotten here, but it came during the course of the 

hearing today. 

And the Federal Reserve also released a report in August of 2007 

that was required under section 215 of the FACT Act. I ask unanimous consent to submit that for the record. 

[The Federal Reserve report can be accessed at http:// 

federalreserve.gov/boarddocs/rptcongress/creditscore/default.htm] 

And I also ask unanimous consent to submit for the record the 

Consumer Federation survey that I referred to in my opening statement. I am just trying to get a full record here so that anybody who 

wants to go and really, really delve into this subject will have the 

information they need to do it. 

It has been wonderful. I am sorry that we backed you into a 

timeframe where we couldn’t explore as extensively with you as we 

did with the first panel. I can tell you that one of the questions I 

am going to want you all to be addressing in writing is whether 

the credit reporting agencies can, consistent with the FACT Act obligation, which requires complete and accurate consumer reports, 

base their numbers on maximum available credit as opposed to 

credit that is actually outstanding. It would be interesting to get 

your reaction to that. That was one of the questions that I asked 

in the earlier panel and didn’t seem to get as forthcoming an answer as I thought I might. 

We thank the members for being here, and this is an extremely 

important subject. We hope that people have flocked to their televisions to watch C-SPAN 3. And if they did, that they learned a 

lot about credit scores, credit reports, alternative data, and the pitfalls that are out there. I would tell them that it is not only out 

there for credit decisions; it is out there for insurance decisions, 

too, because of the way this thing is structured now. 

56 

So, with that, I will note that the members may have additional 

questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. 

And with that, thank you all for being here. The hearing is adjourned. 

[Whereupon, at 5:15 p.m., the hearing was adjourned.] 

(57) 

A P P E N D I X 

July 29, 2008 

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