The recent development in the debt and credit management has nothing to cheer about and has apparently fallen into deaf ears with hardly any favorable points for consumers. The revision of the FICO credit score has so far received mixed responses since its implementation but the benefit of the doubt has been given to the lenders. The move seems to be a shot in the arm for citizens at a time when everybody is reeling under the COVID-19 crisis.
The loopholes in the revised FICO scores are very much evident leaving the citizens puzzled and worried.
Why is FICO a big deal?
It is procedural for banks to check your FICO score before approving loans or any form of financial aid and it was necessary to prevent frauds, default payments, and maintain the integrity of lenders. Fundamentally, a good score (>700) means the approval of loans.
How does it affect you?
Earning a good score depends on how disciplined you have been in paying the interests consistently without delay. In cases, where you were unable to pay it regularly either due to lack of money or being jobless then that reflects in the FICO score. Such a situation makes you ineligible to get loans in the future.
What is the new FICO brouhaha all about?
There is no denying the fact that FICO scores were a way to mitigate risk for lenders no matter which version they follow. Initially, the actual practice was to assess an individual’s behavior of borrowing and clearing the EMI on a monthly basis. However, the current versions emphasize on pulling out the historical payment data of consumers and assign the score accordingly.
Where do things falter?
The updated FICO version is favouring only one section of the consumers and fails to address the needy. Consumers who are low-salaried, juggling jobs to meet their ends, unemployed individuals reeling in huge debts will face the brunt for sure. The above-mentioned categories will not even find a place in the eligibility criterion because each one of them will have below-average or unsatisfactory payment history, so does it mean they are defaulters? Do they not deserve a FICO score and enjoy the benefits as a borrower?
Also, lenders get a valid reason to ignore low scores and concentrate on those who look promising and trustworthy.
Falsified FICO and its versions
Such a set up will only encourage the disparity among consumers on the basis of economic status which is bad not just for democracy but human well-being too. There might be several versions of FICO but the underlying process to approve your eligibility looks unethical. While keeping in mind the interest of one’s doubtful source of income in the ensuing years due to the pandemic the move is definitely condemnable.
Being unconventional can save the day
The goal of FICO was to better business decisions by optimal use of consumer data effectively. To an extent, it paid off but it has received a lot of flak for not making use of the opportunity in the right direction owing to the illogical approach and that too at a time when the financial stability of people is on an all-time high. In the recent past, alternative forms of finance have found a liking amongst people following a friendly, ethical, and smart approach as they interpret the obstacles faced by people comprehensively. Alternative finance solutions have been successful and appreciated for securing people’s financial needs.
Hope the consistent economic inflation is an eye-opener to rethink the intention of FICO for people hailing from economically weaker backgrounds.