What New Credit Scoring Models Mean for Consumers in 2006
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What New Credit Scoring Models Mean for Consumers in 2006

SAN DIEGO, CA. ' What do the new credit scoring models, recently announced by the three major credit reporting agencies (CRAs) mean for consumers in 2006
 
"Not much." was the answer from many industry observers and experts to hundreds of questions ICFE has received from financial counselors, especially military counselors. Here is a typical inquiry received at the ICFE.

Question: "I just read that Experian, Equifax, and TransUnion merged their credit scoring procedures changing the numbers from 350/800 to 501/990. How is this going to affect the FICO scoring system and credit reporting in general?" from Angel Dominguez, a USAF Career Readiness Consultant, in Enid, OK.

ICFE asked Craig Watts, the public affairs manager at FairIsaac, about the changes. Here is his reply.

"The credit bureaus' newest risk score raises some interesting questions, but as is always the case in this industry it will be a long time (at least six months, more likely several years) before anyone knows if the score is going to be a successful competitor to scores such as the FICO score that already are entrenched in lenders' decision systems.

Until the government sponsored enterprises (GSEs) weigh in on this new score - IF they decide to do so - the mortgage industry and secondary market will continue to focus on FICO scores. The best known GSEs are Fannie Mae and Freddie Mac. Six years after the FICO score was introduced, both GSEs finished their testing of the score and advised mortgage lenders to begin using automated credit scores - they referred to FICO scores and a competing score -- in their loan underwriting.

So this announcement is a non-starter for consumers and will stay that way until the bureaus can demonstrate that a large percentage of big lenders have begun using this new score to make consumer credit decisions. When Experian rolls out this new score for consumers in a couple of months, it will have the same value to consumers that Experian's PLUS score has today - zero. That's because the value to consumers from knowing a score arises from the targeted lender also using that same scoring system.
You may quote me if you like, I ask only that you provide enough context so my comment(s) aren't misleading. Craig Watts Public Affairs Manager Fair Isaac Corporation 200 Smith Ranch Road San Rafael, CA 94903-1996 Phone: 415-492-5399 craigwatts@fairisaac.com.
 

About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation).  The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. 
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org).  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.

The ICFE is also an on-line help for consumers who spend too much.  ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org.  Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

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