One in five borrowers receives conflicting credit score reports: CFPB

Consumers buying new homes may find themselves accepting loan transactions that either overvalue or undervalue their credit histories, potentially leading to poor credit choices.

The Consumer Financial Protection Bureau released a report Tuesday, saying one in five consumers receive credit scores from mainstream credit bureaus that conflict with scores used by lenders. A homebuyer's credit score contributes to the overall interest rate on a mortgage, and can impact affordability issues.

The CFPB was charged by the Dodd-Frank Wall Street Reform Act to study the differences between commercial credit reports and those used by lenders to determine the effects on mortgage holders and consumers taking out lines of credit.

The CFPB analyzed 200,000 credit files from TransUnion, Equifax ($61.30 0%) and Experian and concluded that while most consumers obtain similar credit reports from both sources, there is a substantial minority who end up with conflicting scores. 

The bureau warns that this is bad for consumers who may end up accepting substandard deals based on credit reports that may be either too positive or negative than their actual credit level.

About 73% to 80% of the time, scores from both sources place borrowers in the same credit quality. In another 19% to 24% of the cases borrowers are put into credit categories that are off by at least one category. A small 1% to 3% of the time consumers are placed in credit categories that are two or more categories off when comparing data from both sources.

"This study highlights the complexities consumers face in the credit scoring market," said CFPB director Richard Cordray. "When consumers buy a credit score, they should be aware that a lender may be using a very different score in making a credit decision."

There is less variation in credit scores used for younger borrowers and consumers in lower-income or high-minority populations than for older consumers or those living in higher-income areas.

The CFPB says this difference is likely driven by differences in the median scores of all of these categories of consumers.

"Firms that sell scores to consumers should make consumers aware that the scores consumers purchase could vary, sometimes substantially, from the scores used by creditors," the CFPB report concludes.

The CFPB encourages consumers to realize the potential for credit score differences, to shop around for credit and to check the veracity of reports frequently.

Click here to read the entire study.