RebelCapitalist: Financial Information for the Rest of Us | Disturbing News from Credit Industry?

Disturbing News from Credit Industry?

Jan 29, 2009 | By: Mr_Blue | Tags: credit cards, fico scores, credit scores

I recently came across two news items that I think are noteworthy because subjects of the two stories will impact consumers’ access to credit. One involves changes to FICO score system and the other is a little more disturbing regarding credit card companies profiling customers based on where they shop.

First, the FICO score change. Fair Isaac Corp., the company that created the FICO credit score system, says it is debuting a “new and improved” system. The number scoring system won’t change - 300 to 850. This new system is suppose to better detect borrower defaults and be more forgiving of one-time mistakes but a lot harder on repeat offenders. It may be years before this new system is fully adopted by credit card companies and mortgage lenders. So, we are stuck with the old FICO credit scoring system. What I can never understand is why there is no competition in this area and who checks to see if the formula/model used to calculate FICO is accurate? Did FICO credit scoring system have a role in our current crisis? The entire consumer credit industry depends on FICO scores. There must be some problem with the current system if Fair Isaac is releasing a new and improved system. Maybe it is time for congress to look into this FICO business.

The second story I can across is very disturbing. Good Morning America had a story this morning on credit card companies, such as American Express (TARP recipient), possibly determining credit decisions based on where a card holder shops. If the card holder shops at stores that are frequented by others who are credit risks that reflects poorly on the card holder. That is right, credit decisions may be based not on the persons payment or credit history but where they shop. This type of profiling is called “behavior scoring”.

This type of profiling may be open to abuses and discrimination. Are credit card companies disclosing to customers that they be using “behavior scoring”? If you are outraged by this activity, I suggest contacting your congressperson and U.S. Senator and then cut up your credit card.