March 16, 2010
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FICO Encourages Treating CC Consumers Better, Pt.3
Making scores more available & less confusing.It would appear that credit card consumers are not the only individuals concerned about the rash of deceptive and abusive practices of the financial industry over recent months. FICO has also taken note of a struggling industry. The three major bureaus have undergone some changes of late as well with the increasing popularity of FICO’s competitive VantageScore which was introduced three years ago. In calculating the VantageScore, all three bureaus us the same formula but due to differences on file in the credit histories of credit card consumers and financial consumers, credit scores will vary from one bureau to the next. However, the VantageScore appears to give lenders the edge in analyzing sub prime borrowers. The rating scale used by both the FICO score and VantageScore vary slightly as well. FICO rates credit card consumers on a scale from 300 to 850 whereas the VantageScore spans from 501 to 990.
The introduction of the VantageScore prompted the FICO company to respond with the development of a new rating scale they call NextGen which the company says will improve upon their already proficient FICO scoring. In view of the fact that it has been difficult for credit card customers to understand how their FICO score is constructed, a fairer system might make it more appealing. To add to the confusion, the FICO, VantageScore, and CreditKarma ratings, there exist multiple other rating scores that are devised by independent firms for other lenders. These scales differ in how the company calculates credit card customer scores as well as attempts to predict a number of different scenarios including the chances of an individual filing for bankruptcy, file insurance claims, and be a reliable employee.
Americans have had a wake up call in wake of the recession and many have committed to reducing credit card debt and raising their credit scores. The current confusing method of calculating an individual’s FICO score hinders consumers from easily raising their credit scores. If FICO is able to convince lenders to share their customers’ score, it will likely give them a competitive edge and continue to be the top credit score provider. Maybe then Americans will have a clearer understanding on what affects their credit score and become empowered to live a healthy financial life.