The credit reporting firm Experian is the target of a California lawsuit that claims the company duped customers by selling them bogus credit scores.

The suit claims the company, through its Consumerinfo.com subsidiary, misled customers by selling them credit scores that are not the same ones used by lenders to evaluate customers for loans. The suit was filed in federal court on behalf of one borrower but is seeking class-action status.

"Consumers pay for these scores so they will know what lenders are evaluating before they apply for a car loan, a credit card, a mortgage, or other credit. It's a shock when they learn the score they got from Experian was worthless, and not seen by any lender," said Jason Hartley, an attorney representing the plaintiffs.

Consumerinfo.com operates the FreeCreditReport.com web site, which is widely known for a series of high-visibility advertisements encouraging consumers to keep tabs on their credit scores. The site, along with a partner site, FreeCreditScore.com, offers to provide consumers with credit scores if they sign up for a credit monitoring service for $14.95 a month.

Different types of credit scores

However, the credit score Experian provides is a proprietary credit rating called the PLUS Score, and not the FICO score that is most commonly used by lenders to determine creditworthiness. Although both use a scoring system that tops out at 850, the two scores can vary by as much as 40 points, according to some experts.

To be sure, the FreeCreditReport.com site currently includes a disclaimer that says the credit score it provides is not the score used by lenders, but indicates a borrower's "relative credit risk level for educational purposes."

However, attorneys for the plaintiffs say Experian deliberately seeks to gloss over that fact and uses other content on the web sites to create the impression a customer is ordering the same credit score used by lenders.

The suit illustrates the often complicated state of credit scoring these days. Although FICO continues to dominate the picture, used by about 90 percent of all lenders, a variety of new scoring systems have been developed in recent years, and a number of new credit scoring companies have appeared as well.

Credit reports, not scores, provided free

One of the things that can be confusing for many consumers is the difference between their credit report - which is a history of the credit activity - and their credit score, which is a rating based on that activity.

Federal law entitles consumers to a free copy of their credit report each year from each of the three major credit reporting agencies - Experian, Transunion and Equifax. However, if they want their actual credit score, they have to pay for it.

Consumers can order their FICO scores from Transunion and Equifax through the MyFico.com web site operated by the Fair Issac Corporation, which developed the model. However, Equifax no longer allows consumers to obtain their FICO scores generated by Experian, but offers the PLUS Score instead. The company still provides FICO scores to lenders.

Since each company may have different credit information on a given customer, that customer's FICO scores as generated by each of the three credit agencies may vary as well.

Published on April 12, 2011