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!
Have you ever wonder about how to get good credit... Read More
INTEREST BEWARE, THERE'S SAFETY IN NUMBERS!Note: The following is part... Read More
The credit card companies make billions each year in legitimate... Read More
When I received my first credit card in the mail... Read More
I didn't think it was possible. But it is. Folks,... Read More
Credit Cards can bankrupt you if you let them run... Read More
I AM THE CONSUMER. AND I HAVE LOW-RATE SUPER-POWERS!Note: The... Read More
HarassmentHarassment of people in debt by creditors or their agents... Read More
FACTA stands for Fair and Accurate Credit Transaction Act. FACTA... Read More
Your credit report is a very important piece of the... Read More
Always shop around to get the best deal when choosing... Read More
Bad Debt IdentificationIdentifying bad debt is not as easy as... Read More
Consumers often have the first credit card that they ever... Read More
A "rate tart" is someone who switches from one zero... Read More
There are multiple reasons that tell us why we should... Read More
Credit repair, is in a word, vital to reestablishing your... Read More
Until recently lawyers for victims of credit damage had little... Read More
Credit card debt is a growing sickness in the United... Read More
You can still save money on a Bad Credit Loan... Read More
Ever wonder how a creditor decides whether to grant you... Read More
With identity theft statistics currently at an all time high,... Read More
In Less Than 30 Days. "What can you do to... Read More
Commercial collections: fixture of the new B2B cultureIf you're in... Read More
Credit has become a much-used word, thanks to the various... Read More
What is a balance transfer?A balance transfer can be explained... Read More
There are many misconceptions about credit scores out there. There... Read More
If you have a bad credit rating, then you might... Read More
Having a credit card is a wonderful convenience for those... Read More
So-called "credit repair" companies claim they can remove negative information... Read More
It's the number one complaint from consumers and it only... Read More
There are many different ways to borrow money. Outlined below... Read More
Ever wondered what is a credit report? If you've ever... Read More
Just as there are too many credit card companies to... Read More
What is a balance transfer?A balance transfer can be explained... Read More
It's no surprise that thousands of Americans are victimized by... Read More
Help! I've Been Turned DownYou received an envelope in the... Read More
Just when most people finish with school and can stop... Read More
I AM THE CONSUMER. AND I HAVE LOW-RATE SUPER-POWERS!Note: The... Read More
What is a balance transfer ? A balance transfer can... Read More
Your personal credit file is separated from those with the... Read More
Q: I'm opening a gift shop and want to be... Read More
These days, people need to very carefully consider what type... Read More
It's the number one complaint from consumers and it only... Read More
Check 21 is the common name for the Check Clearing... Read More
In the new millennium plastic money or credit cards has... Read More
Online car finance is convenient. You can apply over the... Read More
There is almost nothing more troublesome than having too much... Read More
It is a well-publicized fact that more of us are... Read More
If you've ever applied for a credit card or loan,... Read More
Most of us want a good credit report to obtain... Read More
Here's a simple system on how to pay zero interest... Read More
Because most of us have one or two credit cards... Read More
Have you ever looked at your credit card statement? I'm... Read More
When you apply for a loan or a mortgage, the... Read More
This summary of the Fair Credit Reporting Act will explain... Read More
Maintaining your Credit ProfileEvery consumer should be maintaining their credit... Read More
Today there are so many different credit cards available, student... Read More
Which of the following is the biggest threat to your... Read More
There are a couple of reasons for this. You can... Read More
Most of us want a good credit report to obtain... Read More
When you apply for credit one of the first things... Read More
Prepaid debit cards are great financial tools and may be... Read More
Virtually all consumers will have a credit card at some... Read More
A new sickness is plaguing the UK called Denial. Denial... Read More
Secured and unsecured debt - what's the difference?It's easy to... Read More
A lot of credit score myths about fico score ratings... Read More
Credit |