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To cut risk, lenders seek higher scores, putting credit further out of reach for more consumers.

The Washington Post June 23, 2009

As banks tighten their lending standards, one number plays an increasingly critical role in determining consumers' financial fortunes: the credit score.

Lenders use them to decide whether to extend credit and at what interest rate. As lenders demand higher scores, more Americans are having trouble getting loans.

Others aren't getting loans at all because their scores have dropped. They may have lost their jobs and not kept up with credit card and mortgage payments.

To mitigate risks, card issuers have closed accounts or slashed credit lines. Customers who have used up much of their credit then are closer to maxed out, further hurting their scores.

To add to their crisis, people who pay to find out their credit scores discover it can be difficult to learn the score that lenders actually use to evaluate them.

"Credit scores have taken on a new degree of importance," said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, an industry group.

As a result, credit is less available to both low- and high-risk consumers at a time when they and the economy need it most.

"The consumer who desperately needs credit right now is in a very bad situation," said John Ulzheimer, president of consumer education for Credit.com.

Jane Graver is one of those desperate consumers. She once had a credit score of about 700. Most lenders use the FICO score, which runs on a scale of 300 to 850.

Faced with a divorce, serious illness and tough economy, the small-business owner missed a few credit card payments and used up her home-equity line of credit. Last year, her score dropped to the mid-500s.

Now that lenders are demanding credit scores of 720 or higher, she cannot get a mortgage – or even find a landlord willing to rent her a home. Her house in Orange, N.J., sold at a price high enough to cover her mortgage and line of credit, but she is struggling with what to do next.

"It is difficult to cope," said the mother of two.

As scores become increasingly important, they have also become increasingly perplexing. Consumers have free access to the credit reports used to determine their scores, but they have to pay to check their scores.

Many borrowers have been buying their scores from a variety of Web sites, only to learn they might be different from the ones lenders use, say bank officials and consumer advocates.

"There are a number of different scores within the marketplace," said Norm Magnuson, vice president of public affairs at the Consumer Data Industry Association, a trade group.

The FICO score, developed by a company formerly known as Fair Isaac, is the dominant player in the industry. It is calculated based on the data contained in credit reports, which list a consumer's debts and payment history. Three bureaus – Trans-Union, Experian and Equifax – keep those credit reports.

However, to compete with the FICO score, the three bureaus united in 2006 to create VantageScore, which ranges from 501 to 990, which they sell to lenders.

Complicating matters is that Experian and TransUnion have their own scores, which the agencies call "educational scores" because they're intended to help consumers gauge their own creditworthiness.

Susan Henson, a spokeswoman for Experian, said the educational scores are still a good tool for consumers even if they are not what lenders use. "They're really measuring the same thing, which is that consumer's level of risk,," she said.

But some consumer advocates say the educational scores are of little use.

"It's like selling a Gucci bag on the streets of New York," Ulzheimer said. It looks like the real thing, but it's not.

When Sean Craig, a retail manager in Ashburn, Va., first checked a few months ago, his Experian score was 720. Then American Express lowered his Blue Cash card limit to $5,900 from $11,300. His score...