Boosted by the success of credit scoring models in predicting future behaviors, credit rating agencies are taking the science of behavior modeling one giant leap further.
The vast collection of personal information held by the bureaus is being put to use to predict all sorts of things, from whether you can afford a timeshare apartment to whether you’ll take the osteoporosis drugs your doctor prescribed. It’s a marketer’s dream — a world in which there’s a score to predict every possible consumer behavior.
Here is a sampling of some of the new behavior-predicting scores, which marketers, financial services companies and health care providers can now access for as little as a dollar per file.
- Capacity to Pay: Developed by Equifax, this score helps debt collectors determine which accounts are the most profitable to pursue and which consumers are most likely to pay up.
- FICO Bankruptcy Scores: These scores analyze data from credit reporting agencies to pinpoint accounts at higher risk for bankruptcy.
- Income Insight: Developed by Experian, this score provides an estimate of credit applicants’ incomes, including wages and investments.
- Medication Adherence Score: Developed by FICO, this score uses data such as your age, marital status, how long you’ve lived at the same address and how long you’ve had your job to predict how likely you are to take your medication. Those scoring low could find themselves badgered by health care providers with email reminders to stay on track.
- Discretionary Spending Index: Developed by Equifax, the Discretionary Spending Index uses data available to credit reporting agencies to ferret out high-rolling consumers with extra money to spend.
- CoreScore: In development by financial data company CoreLogic, this score targets those who don’t have much credit history. It uses information not typically found on credit reports, including rental records, payday loan applications and even public court records, such as property liens, evictions and child support judgments. The first CoreScore available will be designed for mortgage lenders.
While the new scores may be a dream come true for bankers and marketing companies, consumer advocates argue that the proliferation of new behavior modeling scores raises significant consumer rights and privacy issues.
Any score is only as good as the data at hand, notes Chad Gentry, executive director at the nonprofit Community Credit Counseling Services in Denver.
“Maybe 90 percent of the scores are an accurate reflection of what they seek to indicate,” Gentry says. “But the problem is when there is not enough data points. For people with a thin file, there may not be enough data to discriminate.”
Gentry also points out that life events — such as major medical debt — force people to take drastic measures, such as walking away from a mortgage or declaring bankruptcy. The person may have had a perfect record before and after, yet those events will blemish the person’s credit file for years to come.
At the heart of the issue is whether consumers will be denied access to services or opportunities (or be forced to pay a higher price for them) based on behavior modeling scores. Gentry points out that people with poor credit already are disadvantaged in the workplace.
In the military, for example, both security clearance and promotions are capped on the basis of credit scores. The police department runs on the same principle, as do major defense contractors.
“This makes a lot of sense, because people with poor finances are more likely to take bribes or be persuaded to do things because of money,” Gentry says. “However, employment in general is impacted pretty heavily right now based on your credit score. Even McDonald’s has started taking scores into consideration.”
Roughly six out of 10 employers now include credit checks for some or all prospective employees, according to a survey by the Society of Human Resource Management. Car insurance companies also use your credit history to help determine how much you’ll pay for coverage.
Are current laws, like the Fair Credit Reporting Act, sufficient for dealing with the new types of scores?
“Legislation is always running behind the curve,” Gentry says. “Legislation coming out right now, such as the Dodd-Frank Consumer Protection Act, is just catching up with things that happened years back. Ten years from today, someone will say, ‘I wonder if this medical modeling is a breach of people’s privacy?’”