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.
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