Here's How It Works

he idea went like this: Pick a community with a low average credit score; give away copies of Hooey Savvy's Cookie-Wise Pablo to kids at one school; challenge another local community to see which could improve its credit score most in a year; winner gets local bragging rights and better lending rates.

Unfortunately, from the research I've done and the people I've spoken to, that's not how it works.

A couple years ago Consumer Reports (CR) ran a piece about credit score companies and which one to go to for one's score. Along the way, CR did a nice job of educating the reader about who creates credit scores (lots of folks it turns out including Ford and I'm sure other car companies) and who uses the scores (lenders such as banks for mortgages or car dealerships for financing). So what did CR conclude?

"These credit scores probably aren't worth your money."

Not only is that not reassuring, but a disclaimer that one of the scores isn't even sold to lenders and is "not an endorsement or guarantee of your credit worthiness as seen by lenders" is scary. This sounds a lot like the testimony given by rating agencies before Congress that only said they provided "opinions" on creditworthiness. In other words, at the end of the day, lenders are going to choose which of your scores they like best (read can take you for).

As CR learned, one person can have a variety of credit scores, say, from good to excellent. So if I'm a lender and I see someone who qualifies as excellent, I'll want to lend to them, but at the "good" score rate to make more money.

Consumers have the power to ask what score a lender is using, but if you really need that loan are you going to bust the lender's chops? If you're the lender, are you going to take any flak from someone who needs your money when there's another sucker being born in your waiting room?

Lenders picking whatever number they want is bad news for borrowers. What's inconceivably worse than that? A bank (GS Capital Partners, take a wild guess what the GS stands for) buying a credit scoring company (TransUnion). What's to keep them from making everyone pay through the nose?

If I can't promise people that better credit scores will directly lead to better lending rates, I won't. Fortunately, I've come up with another idea which I'll bounce off folks in Texas when I get there next week.