You Can’t Win for Winning in Today’s Credit Score Environment

As member-owned financial cooperatives, credit unions are in the position to look beyond a set of numbers to determine the true risk of its credit seekers.

 
 

According to an Associated Press report on FICO data, the number of Americans in the lowest credit score category (599 or lower) has risen by 2.4 million in the past two years. More than 43 million people (or roughly 25% of U.S. consumers) score below 600.

As member-owned financial cooperatives, credit unions are in the position to look beyond a set of numbers to determine the true risk of its credit seekers. A FICO score takes into consideration useful information, such as whether a loan applicant has filed for bankruptcy or has judgments against them, but such details are backward-looking. What about would-be borrowers whose patch of rough financial circumstances is reflected in their current credit score? Now-stable borrowers with adequate income won’t see an immediate change in their FICO scores.

The economic downturn wreaked havoc on America’s credit scores, no doubt, but we’ve learned a thing or two from the past two years. And, according to an article that appeared on Thursday in The Washington Post, large credit card financiers couldn’t be unhappier. “Frugal-minded consumers are charging less on their credit cards, paying down their balances and steering clear of penalty fees – steps that are financially responsible but have the industry scrambling to find new ways to make money,” the article says.

For consumers, it appears you can’t win for winning. “A new study by the Pew Charitable Trusts found that annual fees and service fees have increased over the past year while penalty charges – which are subject to the new federal regulations – remained largely unchanged,” The Washington Post article says. “Meanwhile, some cards are encouraging customers to charge more by offering enhanced rewards, allowing the issuer to capture ‘swipe fees’ paid by merchants. And one issuer even allegedly threatened to reject consumers with high credit scores because they didn't boost the bottom line.”

Maybe looking beyond the FICO number – whether soaring or slumping – to determine the actual credit worthiness of a borrower really is a novel concept. Watch below to see how Navy Army FCU ($988M, Corpus Christi, TX) distinguishes itself in its marketplace by putting a pulse to all its loans.

 
 

July 23, 2010


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