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Why isn't the FICO score a good idea for British consumers?

Jul 03, 2013 Simon Williams

Since the onset of the global Great Recession in 2008, many consumers in the United Kingdom have seen their financial situations fluctuate almost violently. Even if in 2007 and before people were riding high and making sound financial decisions, that changed for many just a year later.

This economic tough time lead to so many consumers being fired from their jobs while having to contend with inflation, common expenses and other rising costs. When this occurs in almost every nation, something's got to give. Usually, a few bills go unpaid or individuals start rolling over their credit card balance from month-to-month. But the consequences of such actions can often be dire for years to come.

One of the biggest things many British citizens have seen as a result is a falling credit score. FICO scores are significantly affected when accounts go unpaid, and it can take people years to get back to where they were before just a few seemingly small poor decisions.

This has led numerous British consumers to question why so many lenders use traditional FICO consumer credit scores, especially in the wake of the recession. In using these models to approve loans, lenders have seen their businesses shrink rapidly.

The thing many people in the U.K. might not be aware of is that alternative finance companies, like short term lenders, don't use traditional scores like banks and other lending businesses do. Smaller enterprises tend to have more of a say in their operations, meaning that they can use whatever scoring model they want to approve or deny funding - and there are hundreds of scores out there to chose from.

With this in mind, why is the FICO still around?

Easy to check
For one, the FICO score is pretty easy to verify, even though a lot of people don't take advantage of the free checks each year. Though The Huffington Post acknowledged that there are actually numerous different FICO scores, by requesting a look at their consumer credit reports, individuals can see the generic score. Because anyone can do this, it makes sense that lenders still heavily rely on the model.

That said, so many British citizens fail to do this, so it seems almost counter intuitive. A recent report from Aqua revealed that more than half of all U.K. women have never looked at their credit rating.

Changes on the horizon?
Some industry experts think that the FICO-based lending landscape might be changing in the near future. This shift might actually, in part, be coming from the financial institutions. reported that in 2012 FICO released guidance on alternative FICO mortgage credit scores, taking into account other fiscal information in an effort to provide a better picture of a borrower. This score, in particular, considers certain pieces of data that aren't used by credit bureaus to create traditional credit reports and scores, like failing to pay child support on time, among other things. Other options
Again, smaller lenders have the liberty to decide what type of scores they're going to use when reviewing applications. This way, there is still some semblance of order when it comes to the judging process, but other scores provide a more comprehensive view of one's creditworthiness.

For instance, a lot of lenders are now taking the Payment Reporting Builds Credit ranking system into account. Among other financial factors, this score considers a person's past ability to pay off utilities accounts on time - an element that doesn't usually come into play for traditional companies. This way, U.K. borrowers can be judged on more relevant data, as opposed to bad decisions made years ago that come back to haunt them.