In some form or fashion, credit scores have been around since the 1950’s. But until the past decade or two, they were largely ignored by the public.
It wasn’t until 1989 when Fair Isaac Corporation (FICO) introduced the first general purposes credit score, which we now know as a FICO score. Prior to that, creditors typically used custom scoring models for their specific needs. This new universal model quickly gained popularity among lenders, but it wasn’t until 1995 when it became a household term with consumers. That was the year Fannie Mae and Freddie Mac recommended the use of FICOs for the mortgage industry. Of course since then, the public’s awareness and appetite for credit scores has skyrocketed.
Who’s making the money?
Credit scoring used to solely be a B2B industry. Of course nowadays, that has all changed. Aside from the obvious (Fair Isaac Corp) let’s take a look at which other companies are profiting the most by selling credit scores to consumers:
Experian (EXPN.L): Yes, we all know they’re one of the big 3 credit bureaus, but that’s only part of their business. Over the past few years they have heavily expanded into the online lead generation for financial products and services, including credit scores. Most notably, they own FreeCreditReport.com and FreeCreditScore.com (yes, those two sites with the bands). You may be surprised to learn that Experian doesn’t have a license to sell FICO scores directly to consumers, so instead they are selling what is known as a PLUS Score which “is for educational purposes and is not the score used by lenders.”
Equifax (EFX): Aside from their bread and butter business of being a credit bureau, they are also quite active in selling credit scores directly to consumers. With the exception of FICO’s own website (MyFICO.com), Equifax.com is the only other website where consumers can buy a FICO score. On one hand, this gives them a distinct advantage since they’re offering real FICOs. But unfortunately – usually due to questionable marketing – the vast majority of consumers have no clue that all the other websites out there are offering non-FICO scores. Therefore, the fact that Equifax has the right to sell FICO I don’t think is necessarily an advantage, as far as revenue is concerned.
TransUnion: The third-largest credit bureau is not very active when it comes to marketing credit scores, relative to the others. But most recently, they seem to be stepping up their game. If you go to their homepage, you will see prominent advertisements to “get your free score.” Furthermore, if you check your TransUnion report on AnnualCreditReport.com (which is the government mandated site for free reports) you will notice they do their best to try and sell your on premium upgrades during the process. Advent International and Goldman Sachs Capital Partners purchased the company in February 2012. My guess is that they will copy what Equifax and Experian are doing, by heavily marketing credit scores and reports through 3rd party websites and affiliate advertising channels.
Credit Card Companies: Most major card issuers have implemented scoring offers as an additional revenue stream. For example after applying for the Chase Slate, the cardholder might be pitched an offer for the credit monitoring service from Chase (JPM). Almost every major credit card issuer offers an optional credit monitoring plan including Citibank (C), American Express (AXP), Bank of America (BAC), Discover (DFS), and others.
Personal Finance Websites: My own company, CreditCardForum, promotes some financial products through affiliate marketing. Currently the only scoring offer we advertise is Equifax and we do so very lightly (it is far less than 1% of the site’s revenue). However many personal finance sites – both independent blogs and major web properties – are heavily advertising credit score offers and I predict that trend will only increase. Naturally, that will help the companies which are selling the scores.