New Credit Score For 'Under Served' Consumers

by Broderick Perkins DeadlineNews.Com You may not have retail credit cards, bank credit cards, installment loans and other consumer debts routinely reported to the nation's three major credit reporting agencies to reveal your creditworthiness and later make or break your mortgage loan application. Buy you may have rented an apartment, used a payday loan company, purchased from a rent-to-own store, have a checking account and pay utility, cable and telephone bills. They can be just as revealing about your creditworthiness and help you land a home loan. A new FICO "Expansion" credit risk score from San Rafael, CA-based Fair Isaac is designed specifically to help lenders extend credit to consumers in what is considered a largely "under served" market-- and estimated 50 million consumers -- young, minority, immigrant, recently windowed or divorced and "cash-basis" borrowers who participated in the traditional consumer credit system. For each traditional credit consumer the three major credit reporting bureaus -- Equifax, Experian and TransUnion -- compile a credit report revealing, primarily, how well consumers pay their credit accounts. The bureaus also provide each credit consumer with a credit score -- a numerical analysis of a consumers creditworthiness. The score considers payment histories, level of indebtedness, credit levels, credit use, available credit, type of credit, and other related data. FICO's scoring system is the most widely used, but there are other scoring systems available. Most mortgage lenders rely heavily upon the credit bureaus' scores to approve or decline mortgage loans. Consumers with "thin" or no credit files often don't score well or at all with the three national credit reporting agencies -- Equifax, Experian and TransUnion. When consumers don't have scores or score low because they don't have a traditional credit history, creditors can use the same data FICO will use with its new Expansion score, but without the statistical analysis lenders may be more inclined to deny credit or charge more for credit they approve. FICO, says it's new "Expansion" helps level the playing field by giving more weight to a non-traditional credit consumer's overall credit patterns rather than singling out a payment missed here and there as the overriding reason for approving or declining credit. The three digit score ranges between 150 to 950 -- the higher the score, the lower the risk and comes with "score reason statements" --- up to five reasons that say why the consumer failed to score higher. Traditional FICO scores run in a narrower band, from 300 to 850, but the familiar numerical scoring approach should help lenders give non-traditional credit consumers a better shot at landing that home loan. The scores will not be available through the national credit bureau's, but directly though Fair Isaac's quasi-credit bureau designed to assemble consumers' data, sift it through proprietary expansion score software and crunch out a number and explanatory statements. Realty professionals, lenders and others who need to qualify non-traditional credit consumers can learn more about the new scoring system on the business section of Fair, Isaac's MyFICO.com Web site. Copyright © 2004 DeadlineNews.Com -- Broderick Perkins, is executive editor of San Jose, CA-based DeadlineNews.Com, an editorial content and consulting firm. Perkins has been a consumer and real estate journalist for more than 25 years.