Banks offer free FICO scores to clientele

This April 22, 2005, file photo, shows logos for MasterCard and Visa credit cards at the entrance of a New York coffee shop. Big banks and credit card companies are increasingly offering customers free access to their FICO scores, which are used by lenders to determine how risky you are when they are deciding whether to issue you a new credit card, mortgage or auto loan.
This April 22, 2005, file photo, shows logos for MasterCard and Visa credit cards at the entrance of a New York coffee shop. Big banks and credit card companies are increasingly offering customers free access to their FICO scores, which are used by lenders to determine how risky you are when they are deciding whether to issue you a new credit card, mortgage or auto loan.

CHARLOTTE, N.C. -- Big banks and credit card companies are increasingly offering customers free access to their FICO scores.

The score, named after the software and analytics company that developed it, Fair Issac Corp., is used by lenders to gauge the risk of issuing a credit card, auto loan or mortgage to a customer.

Banks have been able to make scores available to customers for four years, a result of a FICO initiative, but they have been slow to do so. Discover Financial was the first major credit card issuer to give its customers access to their FICO scores in 2013. But JPMorgan Chase and Citigroup among others have adopted the program in the past year.

"This is a piece of information that grades you and judges your ability to borrow, and because it is so crucial, you should be entitled to have it," said Chi Chi Wu, an attorney at the National Consumer Law Center.

It's the latest move by the banks to give credit information to consumers since Congress required that the three credit bureaus offer credit reports to individuals once a year. Credit reports contain much of the information that goes into determining a score, but not the actual number.

A borrower's FICO score is used in 90 percent of lending decisions, but until recently a person had to pay for it -- if it was available at all. Worse, borrowers looking for their credit scores would sometimes be provided what's known as an "educational score" which guesses a person's FICO score but is not the score used to determine a person's ability to borrow.

Because of the lack of availability, FICO estimates that only half of Americans have accessed their scores in the past year and far more don't know what their scores are.

Fair Isaac Corp. created the score in the late 1980s. Jim Wehmann, executive vice president of scores for FICO, said the company recently developed what it calls its "Open Access" program partly because banks were already paying for borrowers' FICO scores and there was little to no cost for banks to pass along the score.

Wehmann estimates that 100 million Americans now have access to their FICO scores through a credit card or their banks.

There are a number of different types of credit scores that FICO calculates, but the most common is a number between 300 and 850. The higher the score, the more creditworthy that borrower is. The average U.S. credit score is about 695, FICO says. FICO uses a formula -- it does not share the exact calculations -- that factors a borrower's payment history, how much debt the person has, if he has ever filed for bankruptcy and other financial behavior.

Free FICO scores have become a selling feature for banks. When Chase added free FICO score access to its Slate card in March 2015, applications and usage rose, said Pam Codispoti, president of consumer-branded cards at Chase.

"It was really about stepping up to meet a consumer need. Everyone benefits when our customers have more tools to handle their financial lives," she said.

Business on 03/10/2016

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