New credit scores target 'underserved'
consumers -- Page 2
By
Pat Curry • Bankrate.com
"This isn't the great fix for those who have
charge-offs or a poor payment history," says Cate Williams,
vice president for education for Money Management International,
a Texas-based credit counseling agency. "It rewards people
who weren't in the credit market, or preferred not to be in the
credit market. Believe it or not, some people don't like credit."
Mortgage lenders say the prospect of having another
tool available to simplify the underwriting process would be a welcome
change to the current process of collecting data by hand. It's time
consuming, labor intensive and subject to fraud, says David Motley,
executive vice president production manager of Fort Worth-based
Colonial National Mortgage.
"I'd love to see it work," Motley says.
"If this is effective and performs as well as the regular FICO,
it will lower the cost of credit and put more people in houses ...
This will make this type of loan more fundable and improve the pricing."
The score is available both to lenders and direct
to consumers at www.myfico.com.
The cost for consumers to get their score is $12.95, says Fair Isaac
spokesman Craig Watts.
Will the 'good news' make it into the report?
Brad Scriber, lead researcher on a credit scoring accuracy study
for the Consumer
Federation of America, says that while it's encouraging to see
an opportunity for millions of consumers to get greater access to
credit, many of the industries from which the data is being collected
have a history of only tracking customers who don't pay on time.
"One of the great strengths of mainstream credit
industry in this country is if you do things right, you get rewarded,"
Scriber says. "If it's relying solely on negative data, it
could hurt consumers doubly."
It is difficult to get positive information because
it takes more energy to collect, file and report, Watts says. Plus,
competitors don't want to give away information on their good customers.
But Fair Isaac's data sources do provide both positive and negative
credit information, and they have confidence that the data is strong
enough to provide a valid score.
Others aren't so sure.
"I'm not confident that the sources of the underlying
information are accurate," says Howard Dvorkin, CEO of Consolidated
Credit Counseling, a national nonprofit debt management group. "These
are the people most desperate to get credit and most vulnerable
to life situations that could affect their ability to pay, which
can't be quantified."
That's a stereotype about the underserved credit market
that needs to be erased, Watts says. Fair Isaac's research has shown
that the consumers who lack credit information come from diverse
income levels and educational backgrounds.
"It concerns me that people think that
the only people this applies to are subprime (people with bad credit
histories) and the very poor," he says. "They haven't
engaged in a formal relationship with a bank. That's the only thing
they all have in common."
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