| New Credit Report Scores Trouble Bad Credit People |
| By Credit Federal |
Published
01/10/2008
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Credit Report
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Poor, No Credit and Bad People Thwarted by New Credit Scores
A new version of the FICO credit score system would affect benefits currently enjoyed by poor and no credit people, and the credit bureaus (Equifax, Transunion and Experian) are expected to adopt the new version.
Currently, bad credit people seeking to improve credit scores employ an "authorized users" tactic, whereby they get their names listed onto the accounts of people who have good credit and hence; by association, get points added to their own credit report scores. Generally, these "authorized user" setups are done by a third party company which not only handles the agreements between the good and bad credit people, but also assure the good credit people that the bad credit 'riders' won't actually use the shared accounts and run up debts.
A common example of a 'rider' is when a parent adds a teenager as an authorized user on their credit card to boost the child's credit score. But under Fair Isaac Corporation's (the company that developed the FICO score) new version, that tactic will still be possible, but it won't do the bad credit person any good. Fair Isaac's new version won't factor authorized user accounts into its credit scoring formulas.
The new version is in response to the controversial rider practice; more commonly called "piggybacking". As explained briefly earlier, "riding" and "piggybacking" is when some Web sites allow consumers with poor credit scores ride on someone else's good credit record.
These companies boast that; naturally for a fee, they can boost your credit score by having you added as an authorized user on the credit cards of people with excellent credit. The good credit people get paid a portion of the fee based on the quality of their credit, and are assured the bad credit people added as authorized users won't actually be able to buy anything on their cards or even get any of their personal information.
Lenders and Fair Isaac officials denounce this tactic, claiming it damages the integrity of credit scores.
According to Mark Greene, Fair Isaac chief executive, "We will do whatever it takes to protect the reliability and accuracy of FICO credit scores for lenders, and to ensure lenders can continue to use FICO scores with confidence when making their most important customer decisions. We will continue working with lenders, regulators and others in the credit reporting industry to end deceptive practices that fraudulently misrepresent consumer credit histories for profit." Mr Greene made this statement one month after Fair Isaac said it was updating its FICO scoring model to "significantly enhance its predictive power."
Called FICO 08, the new formula also will be more forgiving of occasional slips by consumers but will take a harder line on those who are repeatedly late on their bills. The FICO score ranges from 300 to 850.
When you get your FICO scores from each of the three major credit bureaus, that number has been generated using the Fair Isaac formula and credit information that each bureau knows about you.
It's important to check your credit report from TransUnion, Equifax and Experian because each of them may have different information about you; and maybe one or more may actually contain errors, and those variables could make your score different at each bureau. But if your information is identical at all three bureaus, your FICO scores should be pretty close. It's important to make sure all three bureaus have accurate information, because creditors and lenders may review your score and credit report from any one; or more, of the three credit bureaus.
As for when each credit bureau may begin using the new scoring version, TransUnion expects to have the new FICO scoring model available for customer testing during the second quarter of 2008. Experian doesn't yet have a date for implementation, but they are working with FICO on the technical issues.
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