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Free credit score and new FICO model for consumers launched in 2014

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By: Good Nelly
on 20th Oct,2016

The consumer watchdog feels that this move will help consumers get a clear understanding about their financial condition.
Free credit score and new FICO model for consumers in 2014

The Consumer Financial Protection Bureau (CFPB) has requested credit card companies to give free credit scores to consumers. The consumer watchdog feels that this move will help consumers to get a clear view about their financial condition.

CFPB has asked credit card companies not to charge money for sharing credit score related information with consumers. In most of the cases, consumers come to know about their score (free of charge) when creditors refuse to accept loan applications or their cards are stolen.

As per the reports of TransUnion, around 157 million US citizens have more than one credit card. This actually implies that millions of consumers would get free credit score if credit card issuers act as per the instruction of the CFPB.

If you calculate the figures, then you'd come to know that almost 200 million consumers have a credit file with the 3 credit reporting agencies (Experian, Equifax and TransUnion).

FICO announced in November 2013 that lenders can share credit scores with their customers without charging a penny. First Bankcard, Barclaycard and Discover have participated in the program.

They have shared the customers' FICO score in 2 ways:

  • Periodic statements
  • Customer service websites

Richard Cordray (Director of CFPB) referred to certain banks that have made the initiative to offer free credit scores to consumers. Cordray encouraged banks and lenders to share information regarding scores and education related matters through various mediums such as monthly statements.

Proper access to credit scores help consumers in 2 ways. They can:

  • 1 Know about their credit-worthiness
  • 2 Know if their identity has been stolen
  • 3 Take steps to repair credit (if their score is low)

Cordray made the announcement after the consumer watchdog analyzed consumer complaints in details. Several consumers are having inaccurate information in their credit reports. FICO score is calculated on the basis of the information contained in credit reports. One inaccurate tradeline can drop consumer's credit score.

Moreover, several consumers are facing a hard time in disputing information on credit reports too.

Almost 11% of consumer complaints were about the way credit reporting agencies handle disputes. Nearly 9% of complaints were about problems in obtaining a free annual credit report.

New FICO model launched in 2014

FICO Score 9 (the new scoring model) was launched in summer in 2014. The new model was launched with the hope that it would give the best idea about consumer's creditworthiness.

According to Andrew Jennings (FICO's chief analytic officer), "Our innovative, multi-faceted modeling approach incorporates a more exhaustive characteristic selection process to build a score that is even more effective across a wide variety of situations". As per the Marketwatch, "FICO® Score 9 will provide best-in-class predictive power across all major credit product lines - mortgages, auto loans, credit cards and personal loans - from originations through account management".

Credit scores help consumers and lenders make vital financial decisions. Lenders accept or reject loan applications on the basis of credit score.

A high credit score signifies lower chances of loan default. On the other hand, a low credit score indicates that a consumer is likely to default on the loan.

Why did it take time to launch the new model?

FICO Score 8 was launched in 2008. This was the last time when FICO came up with a new scoring model. It had taken more than 5 years for FICO to come up with a brand new credit scoring model. This is perhaps because it takes time to develop a better credit scoring model, help lenders accept it and launch a product specific score.

According to Barry Paperno (who has 20 years of experience in the credit industry), it takes a little while to release a new credit scoring model. A new scoring model is just like a new smartphone. Only a handful of people go and replace their existing smartphones with the new version.

Likewise, only a small section of lenders show interest in replacing old credit scoring model with a new one.

Lots of factors are considered before releasing a new software, smartphone or a scoring model. The cost of accepting a brand new technology and consequences of using that technology are taken into account.

In case of a credit score model, lenders try out the new model on a section of their portfolios. The idea is to check if the new model is better and more accurate than the earlier version. This is a very slow process. In addition to that, several lenders hesitate to adopt the new model released in every 5 years.

FICO Score 9 - The new model

The new model aimed to distinguish between the responsible and irresponsible consumers more distinctively.

The score range still remained the same. Moreover, the parameters also remained the same. The first parameter is that consumers need to have one tradeline (minimum 6 months old) on their credit reports. The other parameter is that the 1 tradeline should be updated in every 6 months.

Usually, most consumers get high credit scores under a new scoring model. On the contrary, reckless consumers are likely to get low credit scores in a new model.

FICO Score 9 - Less inaccuracy and inconsistency

Lenders often have issues about making the most out of purchasing credit scores. This is because there's a difference between credit bureaus regarding a consumer's score. Equifax, Experian and TransUnion provide the credit score to both the lenders and consumers.

Each bureau offers slightly different credit score.

This creates confusions amongst lenders and consumers.

One of the main benefits of FICO Score 9 is that it'll help to make inaccuracies less apparent. This allows lenders to make prompt decision regarding if they should at all issue loans to some consumers.

So, what's your view about new FICO Score 9 model?

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