Since I’m trying to enjoy myself on vacation, I lined up some other excellent writers for the next few days. Please enjoy this post from William Charles, who blogs over at Doctor of Credit. William is a consumer credit advocate that regularly blogs about FICO scores.
For those who don’t know, a lot of credit card issuers have begun offering free FICO scores to their card holders (Walmart, FNBO, Discover & Barclaycard have all been offering this under the FICO open access program). As a consumer credit advocate, I’ve been pushing for more credit card companies to offer free credit scores for a long time.
The other day I came across an article on the Barclay Ring Blog which stated that paper credit card statements cost card issuers $5 per year on average. I decided to do a bit of quick math the other day and found out that lenders pay no more than 7.5 cents per FICO score (this doesn’t include the cost of obtaining the credit report).
This means that credit card issuers could easily make a profit by offering free FICO scores to consumers that choose paperless statements. If they offered a score that updated monthly, it would cost them approximately $0.90 per year. So, as long as 1 in 5.56 or more that received the free FICO score were customers that hadn’t previously opted for paperless statements, the credit card issuer would make a profit.
Again, the Barclay Ring Blog has some interesting data points on this and it seems that approximately 40% of users have opted in for paperless statements (and these are card holders that are motivated to enroll for paperless statements already – as if the Barclay ring card makes a profit they can see some of that profit as part of the Give Back program the card has). This means that for every person who enrolled for a free FICO score, card issuers would make on average $2.436 [(0.6 * 4.66) – (0.4 * 0.9)].
I know that some of you are thinking, “what about the cost of acquiring the credit reports that these scores are based on?” Traditionally, card issuers will do a soft pull on your credit report (all that’s required to calculate a FICO score) every 60-90 days anyway. They’ll also do a pull whenever they are informed that you’re credit has changed significantly (e.g you’ve applied for new credit). They do this to constantly be aware of the level of risk they are exposed to and to also to issue credit limit increases or decreases. This is a cost they are already incurring and, by offering FICO scores, they give themselves a small competitive advantage over other card issuers.
This is a win-win-win situation for everybody involved. Consumers get free access to their credit scores, and card issuers actually benefit. It’s also better for the environment when people opt to receive paperless statements vs. paper statements.
What do you think? Do you think all card issuers should institute this policy? Would you be more likely to sign up for a credit card if it came with a free FICO score? Let us know in the comments.