Fifth District - New Jersey
2469 Rayburn House Office Building/Washington, D.C. 20515 (202)
J. Craig Shearman
September 21, 2000
Roukema Holds Hearing on Credit Scores
Following is the opening statement of House Subcommittee on Financial Institutions Chairwoman Marge Roukema, R-N.J.-5th, as prepared for delivery at today's hearing on credit scores.
Today the Subcommittee is reviewing a topic that is garnering more and more attention everyday the use of credit scores. Credit scores are used by lenders to help them make decisions about who should receive credit and what are the appropriate terms of credit. Computer models take the information in a consumers credit report, and calculate a three-digit number. This number, the credit score, is critically important and its use by lenders, including mortgage lenders, is growing. Yet most Americans do not know their credit score and have no reasonable method to obtain their score.
The Fair Credit Reporting Act (FCRA) does not require that credit bureaus disclose a credit score with a consumers credit report. Therefore, consumers have no assurance that the credit score accurately represents their credit history. And Americans have little information available to help determine how to raise their score and therefore get more affordable credit. This hearing will help us understand the process and use of credit scoring, and determine if Americans would benefit from a change in law. That is why we are all here today.
I certainly believe that spreading some sunshine on credit scores would benefit consumers. Absent a compelling reason as to why it would be detrimental, I believe consumers should have ready access to all factors that impact credit availabilityincluding their credit score. In addition, information to help them understand the credit score is a necessity. But I understand that there also are some practical considerations that need to be addressed. There are many different types of credit scores, including those conducted specifically for mortgage lending. Disclosing scores without additional information explaining the score could easily lead to misunderstanding. Im sure that all of the witnesses can agree that our goal here is to help the consumer. This is why states are getting involved in the issue of credit score disclosure, most notably California. I hope that the testimony today will be able to allow us to develop a consensus on this issue with respect to federal law.
We also must ensure that credit scores are accurate and unbiased determinants of credit risk. It seems that most of the industry operates under the assumption that credit scores are flawless. Considering how important that scores are to consumers, it is incumbent that the scores are fair and impartial. This is an even greater concern for Americans today than in the past since now the terms of credit (such as the interest rate) are often based on the score. It is in everyones best interest to have the highest score possible. It would seem that giving Americans the right to view and understand their scores would serve to increase their accuracy. If there are any concerns in this area, we must address those concerns now. Credit scoring is obviously here to stay, so there should be a constant push to improve the quality of the scores produced.
And the question of who best should disclose a credit scorethe credit bureau or the lenderis something that I hope the witnesses today will elaborate on. A key factor in this debate is how credit reports are used in determining a credit score and what is actually retained in the credit report. I expect that the witnesses will give us their guidance as to what type of disclosure would make the most sense.
I want to recognize that there has been some progress recently that has shed some light on credit scores. Fair Isaac, the developer of the FICO credit score, has listed on its website information on what factors are taken into account in calculating a credit score. While clearly helpful, I do not believe it is enough and I hope that additional progress can be made soon. As we will learn today, there are many issues involved regarding the disclosure of credit scores, and it is imperative that we review all sides of the debate and then take action as needed.
Before I close and we hear from any others members of the Subcommittee, I want to acknowledge the distinguished panel that I will be introducing shortly: Senator Charles Schumer, Congressman Chris Cannon, and Congressman Harold Ford. Their attendance here today reflects the high interest in this issue in both Houses of Congress and on both sides of the aisle. I want to particularly recognize the contributions of Congressman Cannon, who over one year ago introduced legislation that would require credit scores to be included in a credit report when disclosed to a consumer. His leadership on this issue and his role in bringing the issue of credit score disclosure to Congress is greatly appreciated.