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#2215399 - 06/11/19 03:28 PM Credit Score on Denials
whitney0089 Offline
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If a loan is denied and we pulled credit and put said credit in the file, but ultimately denied the loan for an alternative reason (ie, collateral or DTI), do you still report the customer's credit score to the LAR?

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#2215409 - 06/11/19 04:45 PM Re: Credit Score on Denials whitney0089
Adam Witmer Offline
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A financial institution relies on a credit score in making the credit decision if the credit score was a factor in the credit decision even if it was not a dispositive factor. For example, if a credit score is one of multiple factors in a financial institution's credit decision, the financial institution has relied on the credit score even if the financial institution denies the application because one or more underwriting requirements other than the credit score are not satisfied."
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#2215416 - 06/11/19 05:57 PM Re: Credit Score on Denials whitney0089
MScarn6942 Offline
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Adam, does pulling credit constitute "relying" on the credit score? For example, if I pull it, see that it's 780 and meets my UW requirements, but they fail based on lack of a job, did I really rely on it?
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#2215424 - 06/11/19 06:23 PM Re: Credit Score on Denials whitney0089
rlcarey Online
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even if the financial institution denies the application because one or more underwriting requirements other than the credit score are not satisfied."
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#2215483 - 06/11/19 09:56 PM Re: Credit Score on Denials rlcarey
swiggles Offline
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The Adverse Action model form states "we also obtained your credit score and used it in making the credit decision" If the credit decision is a denial, you are saying that you used the score to determine that the request must be denied. So, for example, if a person's score is 820, and you inform the person that their 820 score caused a denial....could be confusing. That said.....both of the software systems we use to create adverse action forms have to be "manipulated" to exclude the score information, if the FCRA disclosure is selected ( the "we obtained you credit report" paragraph).

Recently, I applied with my daughter for a vehicle loan at a dealership....where they farm the application out to a dozen lenders who all access credit. The loan was denied by most due to my daughter's credit, and EVERY SINGLE adverse action form I received, disclosed my 805 score to me.

So we have decided that if the score was obtained, we disclose the score.....no more manipulating the software to avoid it.
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#2215488 - 06/11/19 11:03 PM Re: Credit Score on Denials whitney0089
rlcarey Online
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swiggles - this is the HMDA forum
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#2215497 - 06/12/19 12:22 PM Re: Credit Score on Denials MScarn6942
Adam Witmer Offline
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Originally Posted By MScarn6942
Adam, does pulling credit constitute "relying" on the credit score? For example, if I pull it, see that it's 780 and meets my UW requirements, but they fail based on lack of a job, did I really rely on it?

Well, you said it "meets my UW requirements." Therefore, you relied on it, even though it didn't cause the denial (i.e. it was not a dispositive factor). The only caveat in this would be if you did not rely on the credit score at all as comment 5 to 4(a)(15) says this:

"5. Transactions for which no credit score was relied on. If a financial institution makes a credit decision without relying on a credit score for the applicant or borrower, the financial institution complies with § 1003.4(a)(15) by reporting that the requirement is not applicable."

At first glance, we might think that comment 1 (which I quoted previously) and this comment 5 contradict each other. However, I view comment 5 in that you didn't use the score at all - not for a negative reason and not for a positive reason. To say it another way, we can take language from comment 1 and say that the credit score was not a factor used in your credit decision. While I think these cases will truly be rare, I could see NA being used from comment 5 if a credit report contains a score but a financial institution has a policy to not rely on a score in the underwriting decision meaning that there are not underwriting standards based on an actual score AND the lenders don't ever rely on scores in making their decisions. (This is something that has been debated when talking about AA notices, sort of like what Swiggles mentioned above, but is an entire different conversation - but it does happen occasionally.)

So, if you never use a credit score in your decision (positively or negatively), you would list NA. If, however, you use the credit score either positively or negatively, you would list it for HMDA purposes. This, of course, is based on comment 1 which says that you have relied on a credit score if you obtain a credit score as part of your underwriting requirements, but the loan is ultimately denied for underwriting requirements other than the credit score.

"...if a credit score is one of multiple factors in a financial institution's credit decision, the financial institution has relied on the credit score even if the financial institution denies the application because one or more underwriting requirements other than the credit score are not satisfied."
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#2215507 - 06/12/19 01:40 PM Re: Credit Score on Denials whitney0089
John Burnett Offline
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IMHO, if a lender never uses a credit score, it should avoid receiving the scores if possible, just to sidestep any potential criticism ("You received the score. Can you prove you didn't use it in your decision?"). Proving a negative is just too difficult.

If your only source of credit reports always includes a score and doesn't allow the option of not receiving scores, you may just be stuck. But if you aren't going to use them, it's probably better never to see them.
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#2215511 - 06/12/19 01:59 PM Re: Credit Score on Denials whitney0089
Adam Witmer Offline
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I completely agree, John.

That said, a few still leave the score but say/argue that they don't use it in the credit decision. For example, I once had a lender tell me they didn't use the score and the reason they left it on the credit report was becuase the CRA was going to charge them to remove the score. I doubt the fee would be that much, but that was their argument for leaving it there. My thought is it probably would have been cheaper in the long run to just remove it than have to constantly explain (argue) with auditors and examiners that they didn't use the score.
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Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2215661 - 06/13/19 03:10 PM Re: Credit Score on Denials whitney0089
swiggles Offline
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Duh....sorry Randy....I did not read fully.
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#2217184 - 07/08/19 09:10 PM Re: Credit Score on Denials whitney0089
Kimo in Idaho Offline
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I couldn't agree more with John and Adam. I have had that exact discussion with examiners. It basically goes "you had the score, so you must have looked at it, so you must have used it in your decision". It is just easier to set your procedures to say you use it and report it. If you don't you have to have well crafted policies/procedures and be prepared to defend that you don't use it (in particular it is never referenced in a denial/notes etc.).

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