Credit Bureaus Adopt New Credit Scoring System

The three major consumer credit bureaus in the U.S. have recently created a new credit scoring system that will give financial institutions a more consistent evaluation of the credit worthiness of applicants.

The three agencies — Equifax, Experian and Transunion — have introduced the new system called “VantageScore”. The new scoring system will be used immediately for reporting to banks, lenders, and credit card companies, and will be available to consumers later in the year.

This means that instead of the companies providing three different sets of evaluations — often quite different — there will be much less variation within an applicant’s file. All three companies will be using the same formulas to arrive at their credit evaluations.

A spokesperson for the group said scores will be “virtually the same across all three of the national reporting companies.”

But consumer advocacy groups are not impressed with the new system. Since one of the biggest problems with credit scoring — outdated information — will not be addressed by these changes. The new system will still be working with the same raw financial data as previously. And that data is generally riddled with errors and outdated information, and so is not likely to be any more accurate.

Fico scores, which are used by many in the mortgage business, will remain unchanged. The Fico system was developed more than 20 years ago by Fair, Isaac Corp. of Minneapolis.

** Younger generation prefers debit cards to credit cards

It seems many in the 18-35 demographic have been convinced that credit cards are things to be avoided, and, instead, opt for debit card transactions when given the choice.

The mindset of this younger class of adults is that credit card debt is something to be avoided. And more importantly, many have been convinced that undisciplined use of credit cards can land them in credit trouble.

But it is not likely that this avoidance of debt carries over to larger purchases like homes, cars, furniture, trips, etc. where even the disciplined person is not likely to have the disposable income to pay with cash.

So there is perhaps something illusory about the security provided by debit cards.

This applies also to the assumption that debit cards only let you spend what you have in your bank account. Many financial institutions will actually let debit card users go into overdraft, and then sock them with hefty fees and interest charges. Some financial institutions charge as much as $30 for every transaction that occurs while the account is overdrawn.

Identity fraud can also be handled differently for holders of debit cards. With credit cards, consumer protection laws limit the liability for identity fraud to $50. With debit cards, however, in most cases the card holder must notify the card issuer within 48 hours, after which time the liability passes to the card holder.

In other words, if your money disappears due to someone stealing your debit card, don’t count on your friendly neighborhood bank to return it to you.