Even though credit scores affect the opinions mortgage lending industries form about prospective borrowers, consumers are not allowed to know anything about them. The credit scoring process has been kept a secret for too long, and the California Senate is attempting to unveil the mystery.

One might believe that a credit report and a credit score are the same. This is not the case. "If consumers think they have a good credit report, they naturally assume they have a good credit score,” says Gail Hillebrand, senior attorney for Consumers Union. “The credit report and the score are two different things. Consumers can engage in behavior that hurts their credit score without even knowing it, like shopping for loans on the Internet or transferring balances on credit cards for better interest rates."

What Consumers Know: When researching perspective borrowers, mortgage lenders contract with the three major credit reporting bureaus: Trans Union Corp., Experian Inc., and Equifax Inc. to access a borrower's credit report. The reporting bureaus then contract with a modeler, most likely Fair, Isaac and Company, based in SanRafael, California, to determine a FICO or "credit score.” How the credit score is determined is based partially on the consumer’s credit report.

Credit scores range from 300 - 900 points and different lenders grade differently. Depending on how many points you have, you will receive an A, B, C or D. The higher the score you receive, the lower the risk you pose to potential Lenders.

What Consumers Don’t Know: Credit scores range from 300 - 900 points and different lenders grade differently. Depending on how many points you have, you will receive an A, B, C or D. The higher the score you receive, the lower the risk you pose to potential Lenders.

Currently, consumers have no right to know what information is used to compile their credit score (other than knowing the Lender looks over their credit report) or how this impacts their ability to secure a loan. All they do know is that Lenders use the credit score to determine loan eligibility, interest rates and other loan terms for prospective homebuyers.

While some of the deciding factors come from reviewing credit reports, those reports do not reflect the things that mortgage lenders take into consideration when evaluating potential borrowers. For instance, a home buyer may lose points on their score for not having enough bankcards or having paid off a loan too quickly. These things aren’t visible to the consumer, so he or she cannot do anything to change them. Because of this, consumers may end up paying higher loan interest rates or be denied loans altogether based on information on their credit reports that may appear to be neutral, if not positive... and there’s nothing they can do to change that.

What California is Doing About it: On Thursday, California Senator Liz Figueroa (D-Fremont), representatives from the real estate and mortgage brokerage industries and California's leading consumer rights organization hailed overwhelming bipartisan support of SB 1607 (Figueroa)--a measure designed to remove the veil of secrecy surrounding credit scoring and the process of mortgage lending. SB 1607 was approved by a vote of 31 to 1 and will now move over to be considered by the California State Assembly.

“The Senate's approval of this bill is a great victory for all Californians that dream of one day owning their own home, " said Senator Liz Figueroa. "Home buyers have a fundamental right to know what their score is and how their loan applications are being evaluated."

SB 1607 will:

• Require lenders to provide consumers with their specific credit score, the credit information used to compile the score, and an explanation of how credit scores work in the loan approval process.
• Allow consumers to receive a copy of their credit score when they request copies of their credit file for a fee less than $4.00.
• Compel reporting agencies to correct inaccurate information in a timely manner.
• Provide consumers additional legal recourse when credit-reporting agencies continue to report inaccuracies.

This bill is a breakthrough for all potential borrowers. “Since its introduction, both Trans Union Corp. of Chicago and Experian Inc. have announced they will develop credit ratings that consumers can access when they request a credit report,” said Jim Hamilton, Legislative Chair for the California Association of REALTORS®.

Sponsored by the California Association of REALTORS* and Consumers Union, SB 1607 has the statewide bipartisan support of 16 co-authors including Senators Ross Johnson (R Irvine), Deborah Ortiz (D-Sacramento), Hilda Solis (D-El Monte) and Assemblymembers Dion Aroner (D-Berkeley), John Longville (D-San Bernardino) and Lynn Leach (R-Walnut Creek). Other organizations supporting the passage of SB 1607 include: E-Loan, Inc., Attorney General Bill Lockyer, Privacy Rights Clearinghouse, the California Association of Mortgage Brokers, Consumer Federation of California, Consumer Action, CalPIRG, and Neighbor to Neighbor.