Scores, scores! Everywhere there are scoresTerry W. Clemanscredit scores, mortgage lending, healthcare credit score
The familiar credit scores are everywhere; however, different
types of credit scores are also everywhere. While the mortgage
industry has some "recommended" types of scores, various lenders
are still open to choose from a large selection of models that have
been created since scores started being used in mortgage lending in
the early 1990s. Other lending industries have their own specialty
credit scores to predict the potential for repayment or default.
Bankruptcy prediction scores, auto loan scores, insurance risk
scores and even healthcare credit scores can create some very
confused consumers.
The latest trend in scoring that has been getting some attention
is the healthcare credit score. While healthcare credit scores have
been around for some time, they will be getting even more popular
in the future with the recent founding of Healthcare Analytics Inc. (HAI)
by some senior healthcare executives. HAI is funded with $10
million each from Fair Isaac
Corporation, Tenet
Healthcare Corporation and North
Bridge Venture Partners to develop a new scoring model
initially being called MediFICO. HAI has been created to address
the unique challenges of self-pay revenue for healthcare providers.
By collaborating with leading health systems and accessing Fair
Isaac Corporation's proven world-class technology and expertise in
predictive analytics, HAI plans to deliver a Web-based solution
that will help hospitals manage the increasing number of uninsured
patients and patients with balances after insurance liability. In
2006, these uncollected funds cost hospitals in the U.S. more than
$31.2 billion in "uncompensated care," which is mostly either
charity care or unpaid patient bills, according to the American Hospital Association.
The use of credit information or scores in healthcare is not
new, Equifax and TransUnion both have a
division that provides credit reporting related solutions to the
healthcare industry. Additionally, founded in 1994, Search America in Maple
Grove, Minn. has helped more than 900 hospitals integrate credit
reporting and scoring systems into their accounts receivables and
collections departments. They have nine out of every 10 hospitals
in America as clients.
All of this attention to the credit reporting industry by
healthcare providers is troublesome to many consumer protection
groups. Concerns about the ability to obtain healthcare for those
without insurance or only partial insurance has been the topic of
many discussions and Capitol Hill hearings. The addition of another
product like credit scores, also hotly debated among consumer
protection circles, creates a threat that will have many people
watching as HAI brings its new product to market later this
year.
Why all this about a healthcare score in a mortgage industry
paper? It is to remind loan officers and lenders of all the
specific scores out there that consumers come into contact with,
and to make sure that when dealing with your customers, they
understand that there are many different scores. If a consumer
wants to talk about his score, be specific and remind him that this
is only being used for the mortgage loan process. This is not
likely going to be the same score he obtains from an auto loan or
an Internet offer.
In just the past couple of years, the following scores have all
been used in the mortgage industry: Beacon, Beacon 96, Enhanced
Beacon, Beacon 5.0, Experian FICO Risk Model, Experian FICO Version
2, Experian FICO Version 2 Advanced, Empirica, Empirica 95,
Empirica 98 and Empirica Classic 04. Most of these scores are still
in use today. This is because it is up to the lender, for the most
part, to pick what version of the score they want, with only the
very oldest models not acceptable by Fannie Mae and Freddie Mac. Let us not forget
the Next Generation scores created by Fair Isaac Corporation that
were never approved for mortgage lending, or the newest versions of
FICO scores that are currently tied up in the legal battle over the
national credit repository-owned VantageScore.
If you're not totally confused yet, let's try one more time. In
addition to all of this, there are even more credit scores. There
are also the "fako" scores, as some call them, which are private
label scores created to simulate the results of a version of the
FICO score. The bottom line is, when talking credit scores, be
specific and don't compare apples to oranges.
Terry W. Clemans is the executive director of the National Credit Reporting Association
Inc. (NCRA). He may be reached at (630) 539-1525 or e-mail
[email protected].
