Orman's New Card Isn't Going To Change The World - Or Credit Scoring

Online, February 1, 2012 (Newswire.com) - The financial world has been abuzz lately with rumblings of a new prepaid debit card from Suze Orman. Media coverage about the new card has gushed that the card will help you build or improve your credit history. Orman has said she is trying to "change credit scoring with this card."

But the fact of the matter is that credit scores are based on your credit reports, and a credit card - even one offered by Orman - won't change your score or the way your score is calculated. If you wish to change your credit score for the better, you have to use credit responsibly and pay your bills on time.

Orman has bargained with TransUnion, one of the three credit reporting bureaus. The deal is that she will share spending data from her prepaid cards with the credit bureau, and TransUnion in return will review the data to see if it could be used to determine if a person is a good credit risk or not. The idea behind Orman's move is that she believes people who use cash wisely should be rewarded, just as those who wisely use credit. As the system stands currently, only those using credit are rewarded for good behavior while those using cash only are virtually ignored.

Although the plan is not without merit, it is missing the one piece of the puzzle that credit cannot function without - a FICO score. Your FICO score is a different figure than what the credit bureaus show as your score, and they use different factors to determine that score. And your FICO score is what lenders look at when determine credit-worthiness.

Overall, Orman's card isn't all bad. The fees are lower than many of its competitors, and you do get free credit monitoring of your TransUnion credit report for the first year you have the card.

But it still doesn't change the way your credit score is calculated, and it never will. It also won't become the go-to tool for creditors to determine whether to loan you money or allow you a credit card.

And sadly, it also won't rebuild our credit. The better way to go about doing that is to simply pay your bills on time, every time. You may wish to look at obtaining a secured credit card, which requires you to deposit money up front, which you then draw against when using the card. Either of these methods will help to rebuild your credit.

But remember: rebuilding your credit won't happen overnight. It's going to take time and effort on your part. And slow and steady wins the race.