Suze Orman Money Matters

(If you're not familiar with FICO scores, here's a very accessible introductory column by yours truly.)

The credit bureaus say their new system will be easier for consumers to follow, but the real reason in my opinion is flat-out American competition: The big three want a slice of FICO's pie. And, hey, who can blame them?

Now before we go any further, let me point out that I have a business connection with Fair Isaac, the corporate parent of the company that produces the FICO score. But before you dismiss me as a biased player, hear me out.

My reputation is based on the advice I've given to millions of Americans; advice that helps them better manage their financial lives. I am not about to blow that reputation by blindly taking some party line here. What follows is, cross-my-heart, the best advice on what you need to know about the new credit scoring system. What you do with this information is up to you.

Which Score Should You Use?

Alrighty, so now that you've mastered the world of FICO credit scores, you're wondering if you'll have to switch gears and learn the new rules of the VantageScore system.

Relax -- I don't think anything is going to change for a while. First of all, the new system won't be up and running for a few months. And even once it is ready for prime time, that doesn't automatically mean that businesses that use credit scores will automatically switch from FICO to VantageScore. Right now, 75 percent of mortgage lenders use the FICO score when evaluating a mortgage application, and it's unlikely they'll be in a rush to change a system that's working.

Ultimately, if you take the steps to properly manage your credit score, it shouldn't matter which score is used. If you pay your bills on time, keep your debt-to-credit ratio in check, and don't have bone-crushing amounts of debt, you're going to score well in either system. Whether that translates to an 800 FICO score or a 950 VantageScore is moot; the point is that you'll be in the top tier of either system and therefore qualify for the best loan rates.

There's one caveat: We don't yet know exactly how the credit bureaus are calculating the VantageScore. Their lips are sealed. But it's not as if they are going to reinvent the wheel. What matters to lenders doesn't change: Are you a good bet to pay back your debt on time? What the credit bureaus are rolling out is simply their model of the wheel. So if you have a great FICO score, you're going to have a great VantageScore. And a so-so FICO score won't somehow translate into a fabulous VantageScore.

Putting Credit Freezes on Ice?

To be honest, what I wish the credit bureaus had launched was an all-out initiative to truly help consumers. Despite their public statements, I'm still not convinced they're really on your side. The prevalence of mistakes on the credit reports that the big three maintain on all of us is an embarrassment. And the system for getting your mistakes cleaned up is still not streamlined or easy.

If the credit bureaus were truly stepping up to the plate to help consumers, then how is it that they're pushing Congress to override state laws that allow consumers to "freeze" their credit reports?

Let me step back for a minute and explain the importance of credit freezes and why it's a travesty that there are businesses lobbying against giving consumers access to credit freezes.

Unless you've been off on another planet, you know that we have a huge national problem with identity theft. Criminals have come up with all sorts of ways to steal our personal information and wreak havoc on our financial lives. While there's no foolproof way to prevent crooks from obtaining our personal information, there is a way to severely limit the damage they can do with that information: A credit freeze.

With a credit freeze, you effectively pull an iron curtain down around your credit report that is on file at Equifax, Experian, and TransUnion. If anyone tries to check your credit report, they'll run into that impenetrable curtain. If a lender can't see your report, they're not going to give you that new credit card or loan. Credit freezes are the best way we have right now for consumers to protect themselves from "account origination" identity theft.

Only a handful of states currently allow consumers to put credit freezes on their credit reports. If the credit bureaus have their way, that is going to go to zero.

A bill circulating through Congress would preempt the state credit freeze laws that do exist. And if the legislation passes, it would impose a federal law that would allow consumers to put a freeze on their account only AFTER they have been a victim of identity theft. Yes, you read that right. Your esteemed legislators are actually considering legislation that would only protect you after you have been financially mugged, rather than giving you the ability to prevent the mugging in the first place.

This is beyond ludicrous.

Every American deserves the right to control who sees and doesn't see their credit report. And please don't fall for the lame argument that credit freezes will hurt consumers because they won't have easy access to credit. A favorite example of how your "dangerous" credit freezes are is what would happen if you had a credit freeze on your accounts and one Sunday you went out to buy a new car. Well, the argument goes, you couldn't close the deal because when the auto dealer went to check your credit report they couldn't get a peek because of your freeze.

Talk about absurd. If you know you're going to be shopping for a car -- or a mortgage -- wouldn't you have the foresight to call up and have your credit freeze removed before you start shopping? And in this age of incredible technological sophistication you can't tell me that the credit bureaus aren't able to set up a simple automated system whereby every consumer can easily "lift" their freeze via a phone call or going online.

Motivated by Money?

The fact that it is currently incredibly difficult to place and remove a credit freeze -- in the few states where it is even allowed -- is not because it's a difficult process to implement. It is because, in my opinion, the entities that make money off you every time your credit is checked, or you take out a loan, want it to be a difficult process. They want to make it as hard as possible for you to slow down their revenue stream.

Given the epidemic of identity theft in this country, it is so sad that Congress may actually cave to lobbying pressure and preempt legislation that actually helps consumers protect themselves. If Congress did the right thing it would focus on extending the credit freeze rights that exist in the handful of states to a nationwide program. That's giving you credit where credit is due: The right to control your personal information.

To make your voice heard, contact your Representative and Senators and let them know you want the ability to put a credit freeze on your credit reports.