New Consumer Credit Scores Promote Risky Lending
Posted by Steve Markowitz on April 5, 2015
The Wall Street Journal reported the most often used creator of consumer credit scores, Fair Isaac Corporation (FICO), is introducing a new metric for rating consumer credit worthiness. These metrics will use consumers’ payment history for items like utility bills and how often they have changed their address. Previously, FICO scores have been created from information obtained by the major credit reporting firms.
In making the announcement, FICO indicated that over 50 million Americans who currently do not have acceptable FICO lending scores would be able to obtain them under the new system. This fact alone should raise significant concern as to the motivation behind FICO’s change. However, for those that need more convincing, the FICO’s rating changes come as a result of significant pressure from lending institutions and the real estate industry. These self-interest groups do not seek change for any other reason than a desire for greater profits. In the past, relaxing lending standards has resulted in significant economic damage to the greater society.