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Beyond Credit Score: FICO and Credit Bureaus Get Personal
By Chelsea Prescotti, Guest Contributor on 12/06/2011 @ 02:30 PM
For over half a century now, credit scores generated by credit bureaus and analytics companies, most notably the Fair Isaac Corporation (FICO), have been the gold standard in determining whether consumers are “creditworthy.” Although credit scores have historically served to give lenders an accurate risk-assessment of perspective borrowers, in our age of personal data, more information is now being used in determining potential outcomes in other, disparate areas—for example, the likelihood that you will take your prescription medications.
The New York Times reported earlier this year on FICO’s latest foray into personal data. According to an NYT article, FICO’s newest invention, the Medication Adherence Score, compiles publically available data in order to give doctors and insurance companies an assessment of the probability that any given patient will take their prescription medications as instructed by their clinician.
Interestingly enough, the factors used in determining the Medication Adherence Score are various and not necessarily related to health. For example, individuals who have lived in one home and have had a steady job for a long period of time are more likely to take their medications as prescribed. Being female is a risk factor, considering that women are more likely to take their medications incorrectly. Those who live by themselves or who are unmarried are also more likely to skip or not refill prescriptions.
The purported idea behind the Medication Adherence Score is to help doctors and insurance companies target at-risk patients with email and phone reminders. While this may seem benign, the fact that these scores are calculated without patient consent raises eyebrows. As a consumer, you may be wondering what the broader implications of scores that use personal data could be. The Wall Street Journal raises this concern as it describes how credit scores are used in various disparate settings.
In addition to FICO’s latest innovation, the big three credit reporting agencies are likewise mining personal data for purposes that extend beyond mere creditworthiness. Experian, for example, uses credit information to estimate a consumer’s income. Credit card companies now use this service, called Income Insight, to deny or extend consumers credit. Equifax offers its Ability to Pay Index and Discretionary Spending Index, which estimate how much extra money consumers may have to spend.
While the credit bureaus assure consumers that crunching new numbers will be a boon to consumers, since lending agencies and the like will have a more whole picture of the consumer beyond the limited picture that a credit report draws, it may be too early to tell. A recurring problem for consumers has occurred when employers begin using these analytics for hiring decisions, even though research demonstrates that credit history is not a good indicator of job performance.
Reducing consumers to different numbers and scores may be a questionable practice, one that consumer adviser Gary Gentry criticizes. As quoted in the WSJ article, Gentry notes, "People make character judgments about you based on that FICO credit score that may or may not be accurate. It's not the real world. It's just a computer program."
As a consumer, what do you think about the extended use of credit reports and personal data?
Chelsea Prescotti is a consultant for www.creditscore.net. The Inclusive Economy thanks Chelsea for her thoughtful contribution!
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