New Credit Scoring Model Could Help Millions

Mark and Beth, a young couple in their twenties, established a goal to buy a home within the first three years of their marriage before starting a family. They used the budget and their money wisely in order to save for the deposit. 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 had reached their savings goal and began to look for housing. They found their "American dream" house 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 gain.

But they met a big problem when they went shopping for a mortgage. Even though they had enough income to make mortgage payments and enough money to pay the down payment, they had no credit history. Lenders FICO score did not assess their creditworthiness in order to offer them a loan. Fair Isaacs Co. Established a system of credit score in the 1980s, and since then FICO scores have been used to determine whether someone will qualify for a mortgage and the interest rate they pay.

More than 50 million American adults fall into the same category, they have 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 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 rent, deposit accounts, payday loans, book or CD club payment plans, and retail sales plans set aside .

Who stands to benefit from this new scoring model? Anyone who makes little use of banks, credit cards or checking accounts. The bad credit receivables 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 advantage, credit counseling in the area to prevent potential problems.

Fair Isaac CEO Tom Grudnowski is enthused about his new company 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 opportunities simply because they no have no 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, other countries could fall victim to too much unless they also receive basic credit and debt education.

Tom Hicks, a credit counselor in Chicago, worries that "the average American household $ 8,000.00 because of credit debt, which could open the door to other people who are not able to s look properly credit. Ultimately the burden lies with the consumer, "he says.

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

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