Companies getting very creative with data about you

By Candice Choi, Associated Press

NEW YORK – Companies are getting smarter at predicting your next move

As it becomes easier to gather information on consumers, businesses are crunching personal data in new ways to forecast a wide variety of behavior. In much the same way that credit scores predict how likely you are to pay your bills, a new generation of scores now rate the likelihood that you'll take your medications or redeem a specific coupon.

In some cases, transactions that were traditionally considered off the books — such as rent payments and payday loans — are being incorporated into the growing body of information used to size up customers.

The new uses of personal data raise a host of concerns for consumer advocates, who question the reliability of the scoring models and the accuracy of the information on which they rely. Also troubling is that many consumers are oblivious that they've been tagged with these numbers, notes Chi Chi Wu, an attorney with the National Consumer Law Center. In many cases, consumers have no way to learn what their so-called consumer scores are.

"If this score is about me, I should be entitled to it," Wu said.

With credit scores, for example, lenders are required to disclose a score if it was used to deny a loan or assign a higher interest rate. Those who aren't actively seeking a loan can also pay to learn their credit scores from Fair Isaac Corp., which also goes by the name of its widely used FICO score.

If you're wondering how else businesses are rating you, here's a look at four recently introduced scores you may not know about:

Mortgage scores

Anyone who has applied for a mortgage understands the importance of credit scores. The three-digit figures not only help determine whether a bank will approve a loan, but its interest rate as well.

Now a company called CoreLogic is developing a score it says will zero in on predicting a borrower's likelihood of repaying a mortgage. The score will be based on a new breed of credit reports the company released last month.

These reports gather information that isn't typically listed on credit reports, including information from CoreLogic's in-house databases of rental records and payday loan applications. Also included are public court records, such as property liens, evictions and child support judgments.

The new score is intended to give lenders a more "complete picture" of mortgage applicants, said Tim Grace, a CoreLogic executive. He said that should lead to better lending decisions and reduced delinquencies for banks.

The exact formula for the score is still being developed with FICO. But once they're available in March, Grace said consumers will be able to purchase their scores for a price yet to be determined. For now, CoreLogic is required by law to provide customers with a free annual copy of the more detailed credit reports the company introduced last month. Consumers can request their reports by calling 877-532-8778.

Medication scores

The business of scoring consumers isn't limited to financial matters. A score that was introduced this summer seeks to predict the likelihood that patients will take their medications. An individual's score can even vary depending on the condition; the score is available for hypertension, diabetes, high cholesterol, depression and asthma.

FICO says its Medication Adherence Score is intended to help health care providers flag patients at risk of ignoring doctor's orders. The idea is to improve overall patient outcomes and reduce health care costs. The score is not available to individuals.

Interestingly, a patient's health and credit data are not used to determine the score. Instead, FICO says it can predict compliance based on demographic information such as household size; those who live alone are more at risk of skipping their medications. Owning a car, by contrast, is a good indicator for health care providers, as is being neither very young nor very old.

And as it turns out, FICO says men are more likely to take their medications than women. Other information thrown into the formula includes the rate of bankruptcies in a patient's region and purchase histories culled from the same databases retailers use to target households for catalogs.

FICO, which notes that the scores can't be used for insurance underwriting purposes, declined to say whether the score is being used by any clients yet. But the company has estimated that 2 million to 3 million Americans would be scored by this year, with that number set to rise to around 10 million by the end of next summer.

Income scores

Asking a person how much he or she earns for a living is off limits in most circles. But credit card issuers and other companies can get a good idea of how much you make through an outside source.

Experian, one of the three national credit reporting agencies, in March introduced a product that predicts an individual's annual wages rounded to the nearest thousand dollars. The Income Insight W2 is based on the borrower's credit report.

"The intuitive explanation is that if you can maintain a mortgage or credit card payment at a certain level each month, you're earning a minimum amount," said Brannan Johnston, vice president of income and assets at Experian.

The W2 is a variation of an income forecaster the company rolled out in 2009, which predicted total household income, including investment income and spousal income. The singling out of the individual's wages was a response to new credit card regulations last year that require card issuers to assess card applicants' ability to afford their credit lines.

Although credit card issuers are the most common users of the Income Insight W2, Johnston notes that many other companies — including debt collectors — also use it to gauge how much individuals are earning.

Shopping scores

The items you put in your shopping cart aren't free from scrutiny either. FICO says it has helped a third of the top 100 largest U.S. retailers target their marketing based on customer buying patterns.

FICO declined to detail its roster of retail clients. But the warehouse discount club Sam's Club says it worked with the company to develop its eValues program introduced about two years ago that offers premium members personalized discounts.

Sam's Club uses its vast database of member transactions to determine "propensity scores," which gauge the likelihood that a customer would act on a particular discount. The scores even factor in the best time to offer that discount. For example, a customer who just bought three boxes of bulk cereal wouldn't be offered a discount on the same items right away.

So far, the program seems to be working. The company says that premium membership — which costs $100 a year, compared with $40 a year for standard membership — has more than doubled since eValues was launched. Customers who redeem an eValue discount also make more than twice as many trips to the store and tend to buy far more items during each visit, according to the company.

Although the scores aren't available to members, the company notes that shoppers are clearly benefiting from them.

"It's kind of like the eHarmony of couponing — we find the very best offers for the customer," said Catherine Corley, vice president of member program development at the company.

Credit Error? It Pays to Be on V.I.P. List

May 14, 2011

Credit Error? It Pays to Be on V.I.P. List
By TARA SIEGEL BERNARD
 
The credit rating bureaus, whose reports influence everything from credit cards to mortgages to job offers, have a two-tiered system for resolving errors — one for the rich, the well-connected, the well-known and the powerful, and the other for everyone else.

The three major agencies, Equifax, Experian and TransUnion, keep a V.I.P. list of sorts, according to consumer lawyers and legal documents, consisting of celebrities, politicians, judges and other influential people. Those on the list — and they may not even realize they are on it — get special help from workers in the United States in fixing mistakes on their credit reports. Any errors are usually corrected immediately, one lawyer said.

For everyone else, disputes are herded into a largely automated system. Their complaints are often electronically ferried to a subcontractor overseas, where a worker spends, on average, about two minutes figuring out the gist of the matter, boiling it down to a one-to-three-digit computer code that signifies the problem — “account not his/hers,” for example — and sending a dispute form to the creditor to investigate. Many times, consumer advocates say, the investigation translates to a perfunctory check of its records.

“The legal responsibility of the credit reporting agencies and of the creditors is well established,” said Leonard Bennett, a consumer lawyer in Newport News, Va. “There is a requirement that they do meaningful research and analysis, and it is almost never done.”

Consumers who have trouble fixing errors through the dispute process can quickly find themselves trapped in a Kafkaesque no man’s land, where the only escape is through the court system.

“You are guilty before you are proven innocent in a situation like this,” said Catherine Taylor, 45, of Benton, Ark., who said she had been denied employment and credit because her filing was mixed up with a felon who had the same name and birthday.

Judy Johnson of Bossier City, La., was confused with a less creditworthy Judith Johnson, with a similar address and Social Security number. For nearly seven years, Judy Johnson, a 63-year-old credit manager for a building supply company, said she tried to remove the black marks from her credit report. But when she was denied a credit card, she knew the problem had returned — a third time. “This time, I was livid,” she said.

She ultimately brought a suit against one of the bureaus, and recently settled for an amount she cannot disclose. But the problems still linger. A deputy sheriff recently came to her door to serve her papers for a debt she says she does not owe.

The credit rating bureaus, private-sector companies that each attempt to track all American consumers’ credit use, have grown much more powerful over the last couple of decades as credit has become a crucial cog in the nation’s financial system. Their reports are used to formulate the all-powerful credit score, which lenders use to determine creditworthiness.

But as the bureaus’ work has become more important, consumer advocates say, regulation has not kept up, in large part because their overseer, the Federal Trade Commission, lacks broad authority. That could change once responsibility for the credit bureaus shifts to the new Consumer Financial Protection Bureau, which will be able to write rules and examine the credit agencies’ policies.

The bureaus, meanwhile, do not have an economic incentive to improve the system, consumer advocates say, because their main customers are the creditors, not consumers.

“There is no neutrality in the credit reporting agencies,” said John Ulzheimer, who has been an expert witness in more than 80 credit-related cases and is president of consumer education at SmartCredit.com. “They work for the lenders who buy credit reports from them, and anyone who suggests otherwise is not being intellectually honest.”

When asked about the V.I.P. category, TransUnion said all consumers “have the ability to speak to a live representative.” Equifax said consumers who received a free copy of their credit report were provided with a number for customer service.

Experian denied that it had V.I.P. lists. But a spokeswoman did say that prominent people deemed high risk — like politicians in an election year — might have their credit files taken offline so that creditors or other companies making inquiries could not get access without the bureau’s permission. Experian said those people did not receive any other special handling.

David Szwak, a consumer lawyer in Shreveport, La., who has handled dozens of credit cases, said that the V.I.P. designation and preferential treatment did exist at Experian, and he provided sworn testimony from former Experian employees that the category existed.

Estimates of credit reports with serious errors vary widely, anywhere from 3 to 25 percent. A recent study, paid for by the Consumer Data Industry Association, the trade group for the bureaus, found potential errors in 19.2 percent of reports, but said that less than 1 percent of them had disputes that, when settled, resulted in a meaningful increase in scores. Even 1 percent translates into millions of consumers, since there are at least 200 million files at each of the bureaus.

The F.T.C. is expected to deliver a nationwide study on credit report accuracy next year that could provide more clarity. It could also include recommendations for legislative action.

The volume of disputes has been rising as consumers borrow more and gain greater access to credit reports. The automated system was a response to that. A spokesman for the trade group said most consumers received an answer within 14 days.

Experian is the only bureau that still processes disputes in the United States, experts said, though most complaints wind their way through the same online system — unless the dispute involves a V.I.P.

“They get a lot more high-end treatment,” said Mr. Szwak, the lawyer, who has read the bureaus’ internal procedure manuals and deposed or cross-examined employees. The biggest difference at TransUnion and Equifax, lawyers said, is that V.I.P.’s disputes are specially handled domestically. Regular consumers’ files, meanwhile, may get priority treatment if they involve a time-sensitive issue, like a mortgage pending, or if the consumer is represented by a lawyer or dealing with fraud.

Last year, new rules went into effect to strengthen existing regulations on the accuracy of reports. The rules also allow consumers to dispute errors directly with the creditor. But critics say the rule lacks any teeth because consumers don’t have the right to sue the companies. (Individuals can, however, sue the bureaus and creditors after lodging a dispute through their system.)

But the problem, advocates say, is that consumers cannot vote with their feet. “They cannot remove their information from the bureaus,” said Chi Chi Wu, a staff lawyer at the National Consumer Law Center, who wrote a report on the automated dispute process in 2009, “or take their business elsewhere.”