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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.








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