New Credit Scoring Model Could Help Millions

Mark and Beth, a young married couple in their twenties, established a goal to buy a home within the first three years of their marriage before starting a family. They budgeted and used their money wisely in order to save for the down payment. Whenever they purchased something they always paid cash - no credit cards for them. Why waste money by paying interest to a credit card company?

Within two years they'd reached their savings goal and began house hunting. They found their "American Dream" home in a new community with lots of amenities that seemed perfect for their soon-to-be family. They were elated that their years of saving were about to finally payoff.

But, they ran into a big problem when they went shopping for a mortgage. Even though they had enough income to make mortgage payments and enough money saved to afford the down payment, they had no credit history. Lenders had no FICO score to evaluate their creditworthiness in order to offer them a loan. Fair Isaacs Co. established a credit scoring system in the 1980's and since then FICO scores have been used to determine if someone will qualify for a mortgage and the interest rate they would pay.

Over 50 million U.S. adults fall into the same category - they have either too little credit history or no credit history at all. But now thanks to a new FICO formula, called FICO Expansion Score, lenders will now have opportunities to extend credit to consumers based on non-traditional credit data that are excluded from credit bureau reports.

FICO Expansion will consider a wide range of financial transactions including payment activities such as rental payments, deposit accounts, payday loans, book or CD club payment plans, and retail lay-away plans.

Who stands to benefit from this new scoring model? Anyone who makes little use of banks, credit cards, or checking accounts. The "credit underserved" claims Fair Isaac Co, which includes young adults, low-income consumers, widows or divorcees, and immigrants.

And while those in the credit card and mortgage industry see this new scoring model as a potential benefit, those in the credit counseling sector foresee potential problems.

Fair Isaac CEO Tom Grudnowski is excited about his company's new credit-scoring resource. "This extension of the FICO score gives lenders and other businesses another powerful tool ..., while expanding service options for consumers who have missed out on opportunities simply because they lack a traditional credit history."

The opposition, namely debt and credit counselors, see both the good and the bad. Some consumers will benefit by qualifying for less costly credit arrangements. However, others could fall prey to becoming overextended unless they also receive some basic credit and debt education.

Tom Hicks, a credit counselor in Chicago, worries that "with the average American household owing $8,000.00 in credit debt, this could open the door to others finding themselves unable to handle credit properly. Ultimately the burden lies with the consumer," he says.

Fair Isaac Co. estimates that at least half of those without traditional credit profiles will benefit from this new scoring method.

About The Author

© 2004, http://www.yourfreecreditreportnow.com

Author: James H. Dimmitt

Discover more money-saving tips and articles in our free weekly ezine, "To Your Credit" by visiting http://tinyurl.com/bgo9.

Subscribe today and receive FREE bonuses!

More Resources

Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting

More Credit Information:

Related Articles

Credit Damage: Getting Compensated for Your Loss
Until recently lawyers for victims of credit damage had little possibility to collect for damages beyond medical treatment, lost wages and property loss. Insurance companies threw up their hands in sympathy, claiming victims can only be compensated for what can be measured - tangible goods and services.
Student Credit Cards
STUDENT CREDIT CARDS With graduate debt averaging over £12,000, the ability to spread the cost of further education using a student credit card is obviously attractive. Adding to their appeal is the fact that these cards are relatively easy to obtain.
Credit Repair Myths and Facts
There are no secrets to repairing your credit. Many shady credit repair agencies would love you to think the contrary.
Understanding Your Rights Under The Equal Credit Opportunity Act
It wasn't all that long ago that lenders blatantly discriminated when it came to approving credit for women and minority groups. Women were actually asked personal and demeaning questions like, how many children do you plan to have in the future or are you on birth control?Despite the fact that they were entering the workforce in record numbers, single women were often required to get a cosigner or denied credit altogether.
10 Simple Steps to Manage Your Credit
By far the greatest invention the banks have ever come up with came out in the 20th century. Also the new field of Credit Management was born with the invention of the credit card.
10 Ways To Protect Your Financial Identity Being Used For Someone Else's Shopping Spree
Someone impersonating you could be spending your hard-earned money.Impossible! Not really, check, loan, and identity fraud are a real problem.
7 Ways To Squash Identity Theft
It is the scourge of our age: identity theft. Thieves learn an important part about your personal information, such as your credit card number, and they open accounts in your name and spend, spend, spend! Unfortunately, by the time you discover that you are a victim the damage is already done.
Debit Card vs. Credit Card, What Are The Differences ?
Ah, the "good old days". If you are a baby boomer, like me, then you probably remember how important it was to rush to the bank on payday.
Watch Out For Credit Repairs
It is very easy to find a site that is neat, professional-looking, and one that offers a free three-agency credit report and free credit report without a credit card.This scam is too good to be true.
How to Order the Right Credit Reports to Repair Your Own Credit
In this week's article, I am going to offer some tips and insight regarding how to order the right credit reports needed to repair your credit.Believe it or not, a majority of the credit reports offered on the internet don't have the required information (File Number, Confirmation number, or Report number) needed to repair your own credit.
Which Business Credit Cards with Reward are the Best?
Thinking of applying for a credit card with a reward program to help you and your business? Here is a brief guide to some of the best programs on the internet.The Platinum Business Credit Card with rewards from American Express is a great offer.
UPS Delivers the Goods, Your Identity
Well now we add CitiGroup and UPS to the Identity Theft corporations who have allowed Americans identity to be lost. Each time we have another identity theft case, we find larger and large numbers being lost.
Understanding Credit Report Score
Understanding credit report scores is important when you see your credit report because you need to be able to make some sense of it.Your credit score is used by anyone loaning you money such as credit card companies, home loan lenders, auto loan lenders and finance companies.
Understanding Your Credit Score
When you apply for credit one of the first things almost all credit officers do is check your credit score. Although not all of those officers explained to us what a credit score is, we are all rated according to it and the offers we receive were all dependent on that score.
Credit Repair Services vs. Do-It-Yourself Credit Repair
Millions of Americans suffer because of bad credit these days, and almost all of these people turn to the Internet for help. In the past 5 years hundreds of 'internet-based' credit repair services have sprung up, preying on consumers in need of real help.
Credit Report Hassles
There is no end to the amount of pain that your credit report can cause you. If you have a bad credit history this is something that can follow you around and wreak havoc on your life without you even knowing it.
Good Credit Is a Necessity for Everyday Living
Most of us want a good credit report to obtain vehicle financing, credit cards for emergencies and luxuries, and to finance a home mortgage. However, beyond these consumer loans, a great credit report makes your life easier.
What You Should Know About Credit Counseling
Credit counseling is a free service that many people with money problems have turned to in the face of financial ruin. Credit counseling companies negotiate with your creditors to reach financial solutions that benefit both you and your creditors.
Figuring Out the Ever Nebulous Numbers Called Credit Scores
Credit Score FactorsThe information contained on our credit reports affect every aspect of our lives; including employment, insurance, and even interest rates (mortgage, credit cards, automobiles, etc.).
7 Compelling Reasons Why A Prepaid Debit Card May Be Just The Financial Tool You Need
Prepaid debit cards are great financial tools and may be just the financial tool you need. Here a seven compelling reasons why:1.