FICO '08 Rolls Out… A Year Late

Yesterday, Fair Isaac Corp. (creator of the FICO score) and TransUnion, one of the three major credit bureaus, rolled out the long-anticipated FICO '08 to lenders.

The new scoring model changes a number of calculations. It's more forgiving of one-time "slips" – for example, the impact of a late payment will be less for someone who is in good standing on multiple credit accounts. Conversely, FICO '08 will be harder on those will have less impact on your credit score, whereas "repeat offenders" will see credit scores reflect habitual delinquencies. Those with good credit should see a slight increase in their scores; those with multiple delinquent accounts will see their score drop. The score will continue to range from 300 to 850.

Equifax is expected to roll out FICO '08 in the second quarter. Experian, which is currently embroiled in litigation with Fair Isaac, is not disclosing whether it will implement the new FICO '08 model. However, Experian recently sent a letter of termination to Fair Isaac, stating that it will no longer allow MyFICO to provide Experian MyFico scores to consumers. (Experian will continue to sell consumers the PLUS and VantageScores, which are NOT the scores used by lenders.)

One major concession in FICO '08 – the scoring model will continue to count authorized users (such as children or spouses) on credit card accounts. An authorized user on a good credit account will get a credit score boost. Fair Isaac has purportedly tweaked the algorithm to prevent credit repair companies from gaming the system.

According to the Wall Street Journal, Fair Isaac predicts FICO '08 will improve the accuracy of lending decisions by as much as 15%. But it may be a while before the score is widely available to consumers, as lenders will be carefully evaluating the score and deciding whether or not to use it.

Ain't Nothin' Like the Real Thing… But You Should Still Do It

Hey Credit Mama, is that Free TransUnion Score that I can get through the settlement my REAL credit score? --Eric

Well Eric, the short answer is "no." The score you will get if you take advantage of the TransUnion settlement (which provides most Americans with free credit monitoring services and unlimited access to their credit scores for a limited period of time) is TransUnion's proprietary "personal credit score."

As you know from my previous posts and webinars, credit scores are like wines – there are different varietals for different purposes. TransUnion's score is NOT the same score that lenders will see and use to evaluate you for loans.

But there IS a value to the settlement offer. That is, in an age where identity theft is one of fastest growing crimes in the world and that three-digit score means everything, you should know what is in your credit file in order to correct errors (and nearly eight out of 10 credit reports contain errors). It will also give you an opportunity to see how your actions (such as paying down debt or removing inaccurate, negative information) are impacting your score over a period of time.

In addition, it is believed that should enough people take advantage of TransUnion's offer, the monitoring services offered by the other credit bureaus (Experian, of FreeCreditReport.com fame, and Equifax) will be devalued. One of the biggest complaints by consumer advocates was the unwillingness of credit bureaus to include a credit score with the free credit report that they are legally mandated to provide each American every year. Given that credit scores impact interest rates on any type of loan you can get, insurance rates, and even job offers, it is practically a necessity to know what your score is. So far, selling credit scores and monitoring services has been a huge moneymaker for the bureaus – to the tune of $150 million for Equifax alone, an increase of 22 percent in 2007.

According to an article on msnbc.com, consumer advocate Ken McEldowney of Consumer Action "thinks if consumers who sign up for the free offer get an appetite to see their scores for free, perhaps people will no longer be willing to pay for them. The TransUnion settlement will obviously hurt that firm's ability to sell its credit monitoring product, which retails for about $10 a month. But McEldowney thinks it will also hurt sales of similar products by Equifax and Experian, too."

So spread the word… and start checking the http://www.listclassaction.com/ Web site on June 16, 2008.

Encore! TransUnion Class Action Settlement #2

The beleaguered credit reporting giant TransUnion has agreed to another settlement, this time to end litigation* that alleges they violated the Credit Repair Organizations Act (CROA) when they marketed and sold their credit score and credit repair products.

If at anytime between Dec. 1, 1999, and April 16, 2007, you used credit monitoring services provided by TransUnion or TrueLink, you are entitled to receive three months of credit monitoring services for free from TransUnion. This will give you unlimited access to your credit report and credit score.

To qualify, you will need to submit an authentication form by July 22, 2008. The form, which can be printed and mailed or filed electronically, is available at www.townessettlement.com/claim.php3.


*Townes v. TransUnion, LLC and TrueLink, Inc.

Get Your No-Strings-Attached Credit Score Thanks to TransUnion Settlement

If you had any type of loan account between January 1987 and May 28, 2008, you are entitled to learn your credit score – free of charge – and get at least six months of a monitoring service from credit reporting giant TransUnion. The monitoring service would provide e-mail notification of late payment reports or accounts opened in your name – red flags that would indicate identity theft.

More than 160 million Americans are expected to benefit from the proposed settlement – the largest class action settlement in U.S. history, according to Peter Chapman, editor of the Class Action Reporter.

Under the settlement (which is expected to be officially approved in September), consumers would be able to select one of two options:

• A basic service would provide free credit monitoring for six months. It normally retails for $59.75, according to the settlement. Those who select this service can also apply for a cash payment, which would be paid out of any remaining money in the $75-million fund after two years. (Although Your Credit Mama seriously doubts that there will be any money left in the kitty.)
• An enhanced service would provide nine months of free monitoring, plus use of a "mortgage simulator" that lets consumers see whether improving their credit score would affect their mortgage rates and how much they could save if it did. This option also includes access to one's insurance score, which is used by some insurers to set rates. The settlement values this option at $115.50.

BONUS: there are NO strings attached. A credit card number would not be required to sign up for either service. After the free service ends, TransUnion could not charge for an extension unless it was requested by the consumer.

The lawsuits came about because TransUnion – through a subsidiary company – sold consumers' private credit data to retailers and lenders that wanted to market to select types of customers. Federal law prohibits the sale of credit data except under certain circumstances – such as when the consumer applies for a loan.

You can register your claim beginning June 16 by visiting www.listclassaction.com or calling 866-416-3470. (As of today, the Web site is not up yet.)