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Card could change how credit is scored

Suze Orman has an intriguing idea, but it comes wrapped in a flimsy package.

I'm not thrilled with the packaging, but I do like the idea she has bundled in it. And you might appreciate the idea, too, if you are among the people who think FICO and the credit scoring groups do a lousy job of rating some people who are responsible with their money.

I'm talking about Orman's new prepaid debit card called the Approved Card. Like other prepaid debit cards on the market, I wouldn't suggest it for most people. Finding a bank or credit union that will offer you a debit card free of fees would be a better alternative.

But the potential gem here is that Orman has talked one credit scoring firm, TransUnion, into following transactions of people using the Approved Card. And Orman hopes that TransUnion sees a spending pattern by users that might prompt the firm to adjust how credit scoring is done.

Orman says she's not sure where this will lead, and TransUnion won't provide much clarity. When I tried to talk with the company, a spokesman merely emailed me: "TransUnion is committed to supporting Suze's efforts to understand the impact of prepaid card use on an individual's credit health. Our goal is to help Suze understand whether including this data in a consumer's credit report would impact access to credit products."

Maybe that merely means Trans-Union wants to get along with someone who appears on millions of TV screens. Who knows.

But you have to welcome the possibility that something new might happen with credit scoring. Over the years I have heard from many people befuddled and peeved with the entire credit scoring process. It's a secret, yet crucial, process to most American consumers, because credit scores control, to a large extent, whether you get a loan for a home or car and the interest rate you pay.

Because employers and landlords have access to the scores, it can determine who gets an apartment or a job. In an era in which busy lenders, employers and landlords can't afford the time to do a serious investigation, a quick glimpse at a person through a credit score has become the shortcut of choice.

In the mortgage debacle, a pretty credit score was all a lender needed to approve a loan for someone who couldn't afford to pay.

Disciplined people resent this and despise a credit system that sometimes hurts those who handle money well. The scoring depends on a complex computer formula that can take strange twists based on perfectly logical decisions made by reasonable people.

For example, if you open a store credit card to get a 15 percent discount on your purchase on a single promotional day, that can ding your credit.

If you are offered one-year financing on a large purchase like furniture and, even though you have plenty of cash, figure zero percent's a good deal, the credit scoring formula decides you are desperate and marks you down. That's because zero-percent financing usually comes from a finance company working with your retailer, and people who turn to finance companies tend to be facing money trouble.

Meanwhile, if you are living paycheck to paycheck, have loads of debt but manage to pay the minimum each month, your credit score can be fine.

For years, Orman says, she has tried to get firms such as TransUnion and Fair Isaac, which is FICO, to consider changing the computer algorithm they use. They resisted until this latest venture with TransUnion.