New FICO Score Opens Door for Many Could Not Qualify in the Past

According to an article in the Wall Street Journal, Money Beat, a new FICO credit score designed by Fair Isaac Corp.FICO +1.65% (FICO XD) is intended for those who have not been able to access financing due to their traditional credit score.  This could those new to the credit system, like new graduates. The score will use data from: timely payment of cable, cellphone and utility bills.  A full roll-out of this new credit scoring system is expected early in 2016.

New data not yet published by FICO show that the new score, called FICO XD, could help more consumers get approved for credit cards than the company previously thought. FICO found that 55% to 60% of credit-card applicants it reviewed now have the new XD score even though they were previously unscorable.  FICO had estimated earlier that only about one-third of the credit-card applicants would get the new score.

Why this new credit scoring system?  Because the lenders want to encourage as many people as possible to use credit, even if it extends that person beyond their means.
There are a few reasons for this new scoring system.  This will allow those who have had a foreclosure or bankruptcy the ability to build credit.  It will also open the door for new entrants to the credit system – students and those moving into the job market.

Between 35% to 50% of credit-card applicants who are now scorable have an XD score higher than 620, a minimum threshold that some credit-card issuers require for approval. The XD score runs from 300 to 850, the same range as traditional FICO scores, and a 620 on the XD scale equals a traditional FICO score of 620, says Jim Wehmann, executive vice president of scores at FICO.
Borrowers with an XD score who receive a credit card and pay their bills on time for at least six months will then receive regular FICO scores, making it easier to get other types of loans including mortgages.

Credit is like a medication.  It is beneficial if used properly, but it is disastrous if used improperly.  High schools and families rarely teach the young how to use credit.  Instead, most of us leave the young to swim without a life preserver.  They do their best, but do not realize that the lenders are like sharks, waiting in the shallows to pray on the innocent and naive.   TV teaches our young that success equals fancy possessions, like overpriced cars and houses.  No one teaches the goal of financial security.
Enough of my soap box.  I challenge each of you to learn how “to use credit rather than credit using you”.  Go forth and learn.  Trust your common sense and not someone who is poised to make money from your innocent mistakes (over draft bank fees, late fees for loans, excessive interest on credit cards).

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