FICO, Credit Bureaus, and Privacy

Who's got your number?
     
    When we speak of “credit scores,” we are generally speaking about the industry standard FICO score.  The score is a number between 300 and 850, the higher the score the better.  The FICO score is calculated using a mathematical model developed by the Fair Isaac Corporation that came into wide use in the late 1980s and early 1990s. 
    Despite the importance of these scores, the actual formula used to calculate them is a trade secret.  Fair Isaac owns the credit scoring model as part of its intellectual property, therefore it’s considered a “proprietary” system that is not subject to public disclosure.  For quite some time, Fair Isaac did not release any information at all about the scores, so most people had no idea how different financial decisions were effecting their scores.  They had no way to judge whether an action was good or bad for their credit rating.  Over time, the company released much more detailed information, and people can now actually simulate what effects different financial decisions will have on their scores at myfico.com.  However, the math that produces the score is still closely guarded, and an individual still cannot see his or her own credit score without paying for it.
    Credit scores are calculated based on information lenders report to the three major credit bureaus, Equifax, Experian, and TransUnion. A lender will transmit information about their customers’ account numbers, outstanding balances, payment histories, judgments, repossessions, bankruptcies, settlements, the types of accounts that are being used, and when an account was opened or closed.  They also send identifying information such as names, aliases, addresses, and social security numbers.  The credit bureaus collect this information and compile them into credit reports, which list a ten year history of an individual’s credit activity, employment history, and places of residence.  Lenders pay the credit bureaus for this information in order to assess their applicants’ creditworthiness, or to seek out new prospects for solicitation and marketing.  Thousands of lenders interact with the credit bureaus every day, continuously passing huge volumes of information back and forth.
    The combination of credit scoring, credit bureaus, and the dramatic growth in lending created a lucrative market for information that was once thought to be personal.  Over time, a new industry emerged whose mission was to collect, collate, and sift through the reams of personal data in a process called data-mining.⁴  When privacy or security concerns were raised, the companies who dealt in personal information assured us that everything was fine.  They were just trying to “get to know our customers so we can offer them better choices and more efficient services,” or some similar non-sequitur.  
    As the internet has amply demonstrated, information is difficult to contain once it’s set loose.  One consequence of creating a market for personal information was the explosion of identity theft.  Identity theft, a previously small-scale crime, became a flourishing industry unto itself.  Technology and a lucrative market for personal information gave identity thieves means and motive.  The digital warehousing of poorly guarded personal information invited the theft of tens of thousands of credit scores, credit card numbers, and social security numbers.  Like shooting someone and then charging them for a lift to the hospital, some of the same actors that made large-scale identity theft possible began, and continue, to sell a wide variety of products and services that allow people to monitor their credit reports on a regular basis in order to protect themselves from identity theft.
     We have lost control of how our information is used and who gets to see it.  We cannot profit personally from the sale of our information, but corporate interests can.⁵  We’ve become vulnerable to identity theft, and we are asked to pay the companies that created this vulnerability to protect us from it.  In short, credit scoring whetted the corporate appetite for personal information, leading directly to an erosion of every Americans’ right to keep their information personal.⁶