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Smart Score: Getting Credit Score and Related Education to Consumers

Credit scores have become one of the most important components of credit decisioning. This brief explores  the landscape of credit score accessibility and education for consumers.

  • Matt Davis Innovation Director at Filene Research Institute
  • Denise Gabel COO at Northwest Credit Union Association

Executive Summary

“F-R-E-E, that spells ‘free,’ credit report dot com, baby…”

We’ve all seen the commercials—seemingly benevolent offers of free credit score information, followed by “oh, by the way” disclosures that by receiving these scores you are agreeing to purchase an expensive subscription to a credit monitoring service. Consumers can, alternatively, go straight to the major credit bureaus where they should expect to pay $8 – $12 for access to their credit scores.

As important as credit scores have become to consumers’ financial lives, it can be frustrating how expensive access to this information can be. Worse, understanding the precise calculations that determine these scores is impossible due to proprietary nature of the associated algorithms.

What is the research about?

This innovation brief explores the landscape of credit score accessibility and education, how consumers benefit from understanding their scores, and how credit unions can affordably provide this information to members. The brief also examines Credit Karma, a dot-com dedicated to getting credit scores in the hands of consumers.

What are the credit union implications?

Even small improvements in a credit profile can lead to major consumer savings. A 30-point increase in all consumers’ credit scores could save up to $28 billion (B) in credit card costs alone. For every additional point on the FICO score, consumers can save an average of $589.09 on a $200,000 30-year fixed-rate mortgage and $50.84 on a $28,000 36-month auto loan. Even though there is no discernible difference between the credit profiles, or likelihood of repayment, of a loan applicant with a FICO score of 639 and one with a score of 640, the $25,200 extra that the former will pay for their mortgage over the life of the loan is staggering. 

If small improvements in credit profiles yield massive returns for members, they can also increase a credit union’s base of creditworthy borrowers by as much as 13%. In a time of shrinking loan demand and tightened underwriting standards, programs that help members boost their credit scores could be a golden ticket to higher loan-to-share ratios, reduced delinquency rates, and a more satisfied membership