clock menu more-arrow no yes

Filed under:

New system may rate credit with every check written

Consumers are accustomed to dealing with credit bureaus when they apply for a loan. Now they may have their credit rated every time they write a check or use a debit card.

Soon, retailers will be able to use a new computerized credit-rating system to decide not only whether they'll take your check, but how big a check you can write. And banks will be able to use it to determine whether they will let you open a checking account, and what kind of fees you will pay.Deluxe Corp., the biggest check printer in the country, has joined with Fair, Isaac & Co., a credit scoring company, and Acxiom Corp., a data warehouse, to create the new system for rating a merchant's risk of accepting an individual's checks and debit cards.

"This is not so much a product as an alliance of three companies to address the growing fraud that ultimately consumers pay for," said Gregory Bjorndahl, a marketing executive at Deluxe, which is based in Shoreview, Minn.

The project already has some consumer advocates worried that mistakes in credit records will become even more of a threat to an individual's privacy and financial well-being. The companies said they will strive to avoid inaccuracies to keep the business of the banks they deal with.

Deluxe will gather information from banks about bounced checks and related payment problems. Acxiom, based in Conway, Ark., will combine that data with other financial information and give it to Fair, Isaac, based in San Rafael, Calif., which will use it to generate a rating.

Under the system, when a consumer presents a check or debit card to a participating retailer, the individual's account is identified by punching a code into a computer or swiping a card containing a magnetic strip or microchip through an electronic reader.

Deluxe sends back the rating to the retailer's computer. The clerk never sees the actual rating but is instructed, based on predetermined criteria, whether to accept or reject the transaction.

The service will also be marketed to banks to help them decide whether to open a checking account for a certain customer, and if so, what kind of account and how much they will charge. Banks can also use the scoring system to determine automated teller machine withdrawal limits and whether to issue debit cards.

The new service, to be called the "debit bureau," will be available within a few months.

The debit bureau is designed to enable banks to charge for their services based on a person's check-writing history, much as a lender charges more to a borrower with tainted credit.

As part of their contract with Deluxe, retailers or banks that reject a transaction or new account are required to give consumers a toll-free number to call to find out why, Bjorndahl said.

That system is not sufficient to prevent mistakes, complained Edward Mierzwinski of the United States Public Interest Research Group, a consumer advocacy group. He believes as much as one-third of credit reports, which are used as the basis for the Fair, Isaac scoring, may contain inaccurate information.

"Nobody is telling consumers that their ability to cash a check, rent a car, or apply for a credit card is increasingly (made) on the basis of some credit-scoring model that they don't even know exists."

Bjorndahl and J.A. Blanchard, chairman and chief executive of Deluxe, said there is a strong incentive to make sure the information is accurate.

"If it's dirty data," Blanchard said, "the bank's not going to call me any more."