Future of Banking: Will Your Deposit Account Habits Affect Your Credit?
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Most of us are familiar with credit scores. You probably know that lenders look at our credit histories and scores, and make decisions about whether or not you are approved for financing – and what interest rate you pay. Credit scores make it possible for bankers to get an idea of your loan payment behavior before they approve you. However, the credit score, while it will always be important, is likely to soon be just one indicator that lenders use to determine your credit worthiness. What’s going on with your deposit accounts may also soon count for a great deal.
Recently, the Wall Street Journal posted an article describing some of the ways that banks are beginning to pry more deeply into your financial life. In addition to practices like double-checking your stated income with a credit bureau income estimation, as well as new tools being offered to evaluate your net worth, banks are increasingly looking at your depositor behaviors. The Journal article mentions that FICO, of credit score fame, markets a scoring formula meant to help banks obtain an at-a-glance view of your deposit behaviors:
“Fair Isaac, the creator of the widely used FICO credit score, is marketing bank-depositor behavior scores, which are used by banks to assess their own customers.
The scores are based on balances, deposit records and withdrawal activity, says Debb Gordon, a senior principal consultant at Fair Isaac.
Unlike credit scores—which are most affected after payments are late or credit is maxed out—behavior scores can be a leading indicator of credit risk.”
As you might imagine, if your depositor behavior score shows that you have practices that banks find less than desirable, you could find yourself paying a higher interest rate on a loan. And, of course, there is another use for having a depositor behavior score: marketing. Banks can use these evaluations to see whether or not you would be a good fit for certain non-deposit bank products and services that might be offered.
Fair Isaac is far from the first company to offer services designed to let banks evaluate you based on your banking behaviors. One of the most well known of these consumer reporting agencies is ChexSystems.
ChexSystems offers services to banks, allowing them to verify your behaviors when you apply for deposit accounts. Many banks use ChexSystems to see if you have been red-flagged by other banks. Like other consumer reporting agencies, ChexSystems relies on the information sent to it from financial institutions. If your information indicates that you might have problems with your account, a bank may choose to reject your application to open a deposit account (yes, banks can do that).
So far, it doesn’t appear that the FICO depositor behavior score is being used in the same way a credit score or a ChexSystems report is used. For the most part, the FICO depositor behavior score appears to be meant for banks to use it themselves, to evaluate their own customers. But, if more banks sign on, it is not outside the realm of possibility that a reporting system similar to the FICO score might be set up so that other banks, beyond your own, could look at your depositor behaviors. All with your permission, of course – just as lenders need your permission to check your FICO score.
Obtaining Consumer Report Information
Technology makes it easy for banks and consumer reporting agencies to collect information on you, and compile into a form that makes it easy for bankers, lenders and other financial service providers to make judgments about you and your ability to handle your money. While you can’t obtain a report on your depositor behavior score from Fair Isaac, it is possible for you to obtain your ChexSystems report. Indeed, you are entitled to a free ChexSystems report once every year, as well as if you have been denied a deposit account.
Other consumer reports that you might consider requesting include:
- The Work Number: Report on your employment, including income information.
- TeleCheck: Another services that focuses on checking deposit account habits. One free report each year.
- Insurance Services Office: Receive one free A-Plus loss history report.
- RentBureau: Keeps track of rent payments as reported by landlords.
- Lexis Nexis: Personal information report for free once a year. Includes non-public information as well as public information. An interesting eye-opener, allowing you to see just how much of your “private” information might be available to certain entities. You can get your C.L.U.E. report here as well.
It is important to realize, though, that like the credit reports you get from the major credit bureaus (free reports at www.annualcreditreport.com), the information in these consumer reports are based on what others report about you. If a company you deal with doesn’t report on your behaviors, then it won’t show up in the report.
Could These Reports Be Used More Extensively in the Future?
For now, these types of consumer reports are mostly used as niche reports for specific purposes. However, your credit report being increasingly used for items beyond loan decisions. Some banks will perform a hard inquiry when you open a deposit account, and many landlords and insurance companies check your credit when making decisions. If your credit report can affect a wider variety of financial transactions, there is nothing stopping other consumer reports from affecting your ability to get a loan in the future.
Another consideration is that a number of reports could be combined to create a more comprehensive picture of your finances for anyone, from loan officers to insurance agents to the bank employee handling your deposit account application. Indeed, the Wall Street Journal mentioned above reports that Experian recently bought RentBureau and wants to provide a suite of reports that financial service providers can use when making decisions. While this could lead to a more accurate view of your financial situation, it could also mean that the lack of financial privacy could lead to penalties for mistakes that have, up to this point, been largely overlooked during the financial application process.