Do We Really Need Another Credit Score?


Are you suffering from a case of credit score fatigue? If so, you’re not alone: We hear about credit scores nonstop. We’re supposed to check them regularly. We can order them free online. We can pay someone to monitor them for us. It’s practically a full-time job keeping up with the whole production. And now there’s another score out there we’re supposed to care about?

The thing is, it might be worth paying attention.

The big three credit bureaus — Equifax, Experian, and TransUnion — have just rolled out a new version of their VantageScore (launched as a competitor to FICO, the best-known scoring company) that they say gives banks a better idea of how previously “unscorable” people — between 27 and 30 millionAmericans — will behave as borrowers.

This is important because under the conventional scoring system, many young people; recent immigrants; those who have declared bankruptcy; and the millions of “unbanked” Americans either don’t have any credit history at all or only show credit activity that took place years before, which counts against them under existing scoring models. Without a recent credit history, these people are generally unable to get credit cards, a mortgage, or an auto or business loan. If they are able to borrow money at all, it’s at a very high interest rate. Insurance companies, landlords, and employers are increasingly checking credit scores, too.

(MORE: 7 Steps to a Higher Credit Limit)

What’s particularly frustrating for many of these people is the absurdity of their situation: You can’t establish a credit history without access to credit, but you can’t get access to credit without a credit history. The new scoring formula begins to address this issue pulling information from new data sources: For people who don’t have credit cards, car payments or mortgages, information about rent, utility, and cell phone payments can help fill in the gap.

continue reading »