Friends, it’s supposed to be the slow season, but that hasn’t happened yet, so my apologies for the lack of posts. However, I did have to share this with you. If you haven’t heard of it yet, you will soon. There is a new FICO scoring model that is in a beta testing stage you need to know about. There is some speculation as to whether this is a good thing, or a bad thing. And, as will ALL things, there are two sides to every story. The image above says it all – ‘Cash Accounts & Banking Behavior’.
What this means, is that with your permission, FICO can consider these as new tools when determining risk, or ‘credit worthiness. The operant word is ‘permission’.
See, FICO, and lenders are always trying to tweak the model so that they can ever increasingly determine risk, set interest rates and ensure they profitability and they believe this is one such way of ensuring they charge you what they need to, to make certain they make money.
So, the scary thing is the notion that a 3rd party would have visibility to your most intimate information: what is in your bank account?? How do you use your money?? And indeed, I do not like that idea any more than you do. However, there are some advantages, or at least it’s being sold that way. So, basically, if you have a thin credit file, your scores may not be truly reflective of your risk level. Perhaps you pay everything on time, and are a great risk, but, you prefer to pay with cash a lot, and don’t like credit cards.. Well then, in the eyes of previous FICO scoring models, you would be a horrible credit risk, because you aren’t using much credit. Despite the fact that you may never be late and are very responsible.
This new scoring model has the potential to change all that. As a matter of fact, just today (less than an hour ago actually) we got a call from a gentleman who stated he had no score at all, told to him by the dealership he was wanting to buy a car from. He was an example of someone who may benefit from this new model. He has plenty of money, paid his bills on time, but just preferred to pay with cash.
So, yes, there are a few things folks aren’t telling you. You have to give permission for FICO to access this info. Your bank data is not automatically shared. Also, and this is a big one, we have no idea who is going to be using this model. Remember FICO 9 a few years ago?? That ended up being a big flop. Lenders still use FICO 8 and the previous versions. So, will this model be another flop?? Who knows.
If I had to guess, I would say yes. Besides, if you lack credit history, or a credit score. There are plenty of ways to fix that, with out giving up more of your privacy.
Give us a call, we can tell you how. For free; and if you don’t want to give us your name, that’s ok too.
Ed-Jack – Scoreology – The Science of Credit Repair