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Color of Money

Credit Score Aims To Rewrite History

By Michelle Singletary
The Washington Post
Sunday, August 1, 2004; Page F01

You know those car ads that say: "No credit? No problem! We have a deal that can still put you in a new car!"

But the deal turns out to be a loan with a 24 percent interest rate, more than three times the going rate for borrowers with a credit history.

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Well, the days when car dealers, mortgage companies and other lenders can charge folks with no credit history those extraordinarily high interest rates may be numbered.

Fair Isaac Corp., the creator of the FICO credit score used by most lenders to determine a consumer's creditworthiness, has introduced a product that will take into account the payment history of the scoreless -- usually recent immigrants, people with low incomes, young adults and consumers who have relied on cash to pay for almost everything.

I have an 83-year-old aunt who falls into that last category. Despite the fact that she has a sizable bank account and no debt (since the mid-1970s probably), she couldn't get a telephone line installed when she moved to a senior-citizen apartment complex because she had no recent credit history. And when I say no credit history, I mean she isn't even in the credit bureaus' databases.

According to the TowerGroup, a financial research and consulting firm, and Fair Isaac, there are about 215 million credit-eligible adults in the United States. Of those, about 160 million have enough credit information to generate a credit score. The remaining consumers lack credit reports entirely or have credit reports with too little information to predict their credit risk.

With the new expanded score, Fair Isaac thinks it can generate a risk-based profile on 25 million consumers.

"This extension of the FICO score gives lenders and other businesses another powerful tool for building and growing their presence in high-demand and emerging markets, while expanding service options for consumers who have missed out on opportunities simply because they lack a traditional credit history," Tom Grudnowski, chief executive of Fair Isaac, said in a news release.

Many people have a limited credit history or no history at all because certain lenders, landlords and utility companies don't submit payment information about their customer base to the major credit bureaus.

But there are a number of credit repositories that service niche markets -- landlords and payday lenders, for instance -- that Fair Isaac will now try to tap to generate the expanded credit scores.

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