Marketplace Scratch Pad

Credit scores on the rise

Scott Jagow Jun 19, 2009

The latest numbers show that, on average, credit scores are starting to bounce back up. The strongest trend is in the Midwest, which also happens to be the place with the highest credit scores anyway. There’s also a new kind of score being used.

First, the credit scores. This map breaks them down by state and region.

And from the WSJ blog, The Wallet:

“You can clearly see that certain areas have more credit-savvy consumers,” says Ken Lin, chief executive of Credit Karma. He says Westerners have higher credit scores, but also higher debt levels. In the South, the opposite holds true with lower debt and lower scores.

But again, the Midwest has the best combination of low debt and high scores:

The region carries the lowest debt load of any region in the country, with consumers, on average, holding $6,700 in credit card debt, $156,000 in mortgage loans, $13,100 in auto loans and $26,000 in student loans.

The national average is $7,072 in credit-card debt, $205,365 in mortgages, $14,565 in auto loans and $26,930 in student loans.

The current average credit score nationwide is 674.

But companies are also starting to use something called an ID score. This is supposed to determine the likelihood that you are who you say you are: From SmartMoney:

Companies that sell ID scores say their products serve as a weapon to combat fraud by helping to predict the likelihood of identity theft, which by some estimates cost consumers and businesses $48 billion last year. Already, such scores are used before most credit-card transactions or loan applications are approved — and their use is expected to spread. Thanks to new regulations, most businesses will soon be required to use ID scores or some other type of methodology to confirm a customer’s identity.

But the growing use of identity scoring is raising some questions, too. Some privacy advocates say the expansion of efforts to compile incredibly detailed consumer dossiers is troubling. Others say the scope of identity theft has been exaggerated — in terms of losses to both businesses and consumers. And then there’s the issue of accuracy: If some of the data used to calculate a score are wrong — due to errors in one’s credit report, for example — the score will be wrong as well.

Here’s how ID scores are calculated:

Identity scores are calculated based on how certain personal information, such as your name, Social Security number, address, birth date or phone number, is used in transactions or for credit applications. For instance, your score might be higher — signifying a higher risk — if you move around a lot. Other factors that can raise your score, according to companies that calculate them: changing your name (say, after getting married) or living in an apartment building, where many people share the same street address. Even using an out-of-state cellphone number when applying for a car loan can boost your score.

If a score is deemed too high, an account application or transaction gets flagged. As a result, the consumer may be asked seemingly random “challenge” questions. They’re meant to be questions that fraudsters are unlikely to be able to answer — but in some cases, they can tax the memory of the authentic consumer. You might be asked the house number where you lived seven years ago, for instance, or the color of the car you owned in college or the issuer of the mortgage on your first home. Further up the inconvenience scale, you might even be asked to visit a bank branch to show your personal identification or to fax information to prove your identity.

As someone who’s gone through identity theft, I definitely support something like this. But it sounds like, as with credit scores, sometimes, it’ll make life quite a bit more inconvenient, fair or not.

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