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.
I think the three credit reporting agencies should provide your score for free – as well as your credit report. No more of this once a year free credit report, and no more of this paying to see your score. It’s OUR score, and OUR financial information – we should be able to see what it is. Especially given the whole identity theft thing, as well as the fact that it impacts our ability to borrow.
Travis,
While I agree with you that it’s “OUR score”, I don’t believe it should be free ( I will take it when it’s free though). I think those companies are providing a service, and they should get compensated. The only reason those credit card companies are offering them for free is to set them apart from others. In the end, nothing is free.
This is what’s currently being suggested under the new SECURE act.
I actually don’t know of any credit card companies that DON’T offer free FICO scores. I know all of mine do and I know others that I don’t have also offer it as a perk. I don’t think they absolutely NEED to offer it as a perk but it’s a nice thing to have.
Chase & AmEx are two major issuers that don’t. Only the companies I listed currently do and they are all smaller issuers.
LOVE this idea, and yes, every cc company should offer a free FICO score to customers. Great post, William!
Banks can’t get a FICO score without paying for the credit report. The bureaus in turn charge extra to include the score, and then pass a royalty on to Fair Issac.
Most banks routinely review all accounts using batch processing rather than the online reports most consumers are familiar with. The bureaus apply business rule criteria to the file and return summary data to the banks. Soft inquiries are logged.
The costs of running these batch processes are about 10% the cost of a full report often used when first issuing an account. The savings on postage and printing might make the numbers work as you suggest!
They are already incurring the cost of these batch reports anyway, they are constantly checking your report for changes.
I primarily signed up for my Discover it card for the FICO score because Credit Karma labels me as a “thin file” so I could get it for free another way. I think it’s great that credit card companies are starting to do this and I think it will be ubiquitous in the next few years.
Hopefully the SECURE act passes so all consumers get access to this.
I think that cc companies definitely need to all do this! I hope that the days of having to pay to see your score are over. So bogus!
Generally, in Canada anyway, you an get a free credit report through a few different avenues. None of them are traditional credit card companies, though I could see it being really easy if that were the case.
I usually don’t sign up for paperless statements unless they offer some sort of perk. I don’t mind paperless, but I have quite a few cards and having a paper statement makes me take an extra look at everything. I love that Barclay offers a free score that you can log into and see for whenever you want. I suspect at some point that will be standard for all cards.
I think it’s great that more providers are starting to offer this. As you said, they’re checking it anyway on some sort of regular basis so it only makes sense to provide it to us as the consumer. I don’t know that I’d sign up for paperless statements as we have quite a few cards, but I like that more are starting to offer it. The score might be a little dated, like a month or so old, but it’s much better than nothing at all. That said, with the cards that are already providing this I assume that most of the others will start to follow suit in the near future.
One of our credit cards just started providing FICO score. The last time we refinanced we found our what it was from the bank. I think that the credit score should be free once a year to the individual. Whether it comes from the credit bureau or credit card company isn’t important to me. Just so I don’t have to pay for it.
I would absolutely love this! The credit card companies have access to this information, and it would really help out consumers. I am not really in the market for a new credit card, but the FICO score with the Discover IT card really made me consider getting a new one!
This would be a big plus. I’ve never paid to see my FICO score, but I recently saw it when I applied for a loan. I don’t think I’d pay for that info, so getting it for free would be great!
It would be nice if all credit issuers gave a monthly FICO score along with the account balance statement. I didn’t realize that Barclaycard would give me my FICO until I read it in your article. I went online and sure enough, there was a FICO score button in the tools section. My score is 833, which is probably good enough for my needs.
Thanks for the information.
Things are changing! A FICO score is not a static number, it is dynamic and you can either improve or destroy it at anytime. I think it is good to monitor your score more often than not. If credit card companies want to report it routinely, why not. I think consumers should use their strength (high scores) to negotiate better deals.
William, your work never ceases to surprise. I never realized that credit card companies made profit by offering free scores. However, the way you put it really makes sense. I’d have to say I’m all for all credit card companies doing this. It saves on paper waste, and offers customers a great incentive to be green!
It would definitely be nice to be able to see our credit scores for free… although I have to wonder if making that information readily available would cause people to obsess over their credit scores even more than they already do.
I think it should be free, for sure. The consumer is king and should be treated so 😉
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