July 31, 2008
by Edward Jamison, Esq.
If you've been following the financial news over the past couple of weeks, chances are you've heard about the CompuCredit lawsuit and the potential impact on credit scores.
On June 10th, the Federal Trade Commission filed a lawsuit against CompuCredit, for the deceptive marketing of their Aspire Visa card to sub-prime borrowers. According to the lawsuit disclosures, CompuCredit was penalizing their customers for using their Aspire Visa cards with certain merchants.
A few examples that were given were massage parlors, bars, tire companies and even marriage counselors.
They were using a scoring model that helped to predict their customers' risk based on where they shopped. How in the world does buying tires or going to marriage counseling impact credit scores?
You can imagine the frenzy this piece of information is causing. Furious consumers and media outlets were demanding to know why "where" you shopped could negatively impact your FICO scores. Well, therein lies the problem... unfortunately, the media lumped these scores with FICO scores and simply put - these aren't FICO scores, folks.
This caused an awful lot of confusion and in an effort to set the record straight, here's some additional context that should help shed some light on this touchy subject:
Click Here to Read On...
Thursday, July 31, 2008
Tuesday, July 29, 2008
FICO or FAKO?
July 24, 2008
by Edward Jamison, Esq.
We’ve all seen them – the never-ending television ads and radio commercials with the catchy jingle for free credit reports and scores.
Nowadays a number of similar companies are offering free credit reports and scores. With all of these ads for freebies, it’s no wonder that so many consumers believe that all credit scores are created equally.
First, a little history on credit scores:
A company called the Fair Isaac Corporation created the first credit score. It was made available to lenders in the very late ‘80s and soon thereafter began to pick up momentum and popularity in the lending world. The FICO® score became the gold standard in the mortgage lending world when Fannie Mae and Freddie Mac endorsed its use for evaluating mortgage loan applications in the mid ‘90s.
For years the FICO score was a mystery to consumers and was only known by the lending industry. Credit scores have only recently been made available to the public in the last few years. In 2001, California passed a law that required credit scores to be made available to California residents. This pretty much opened the floodgates for the rest of us.
It also turned into a cash cow for the bureaus. However, for two of the three, instead of selling the actual FICO score, where they had to pay royalties to the Fair Isaac Corporation – they created their own scores to sell to consumers.
That’s where the confusion started.
Now that the bureaus all sell scores targeted at the consumer market, many unknowing consumers assume that these scores are the same scores a lender would see. Unfortunately, this is just not the case and it often causes a lot of confusion for those that are looking to refinance a mortgage or trying to qualify for a new car loan.
So what score is the right score and where can I find it online?
Click Here to Read On...
by Edward Jamison, Esq.
We’ve all seen them – the never-ending television ads and radio commercials with the catchy jingle for free credit reports and scores.
Nowadays a number of similar companies are offering free credit reports and scores. With all of these ads for freebies, it’s no wonder that so many consumers believe that all credit scores are created equally.
First, a little history on credit scores:
A company called the Fair Isaac Corporation created the first credit score. It was made available to lenders in the very late ‘80s and soon thereafter began to pick up momentum and popularity in the lending world. The FICO® score became the gold standard in the mortgage lending world when Fannie Mae and Freddie Mac endorsed its use for evaluating mortgage loan applications in the mid ‘90s.
For years the FICO score was a mystery to consumers and was only known by the lending industry. Credit scores have only recently been made available to the public in the last few years. In 2001, California passed a law that required credit scores to be made available to California residents. This pretty much opened the floodgates for the rest of us.
It also turned into a cash cow for the bureaus. However, for two of the three, instead of selling the actual FICO score, where they had to pay royalties to the Fair Isaac Corporation – they created their own scores to sell to consumers.
That’s where the confusion started.
Now that the bureaus all sell scores targeted at the consumer market, many unknowing consumers assume that these scores are the same scores a lender would see. Unfortunately, this is just not the case and it often causes a lot of confusion for those that are looking to refinance a mortgage or trying to qualify for a new car loan.
So what score is the right score and where can I find it online?
Click Here to Read On...
Thursday, July 24, 2008
5 Big Credit Mistakes
July 24, 2008
by Edward Jamison, Esq.
It’s surprising how many consumers make the same credit scoring mistakes over and over again. In an effort to educate consumers on credit and credit scoring, we’ve compiled 5 common credit scoring mistakes into a list that defines each mistake and explains why they are bad and how to avoid them:
Credit Mistake #1: Closing Credit Cards Accounts
This is probably THE biggest credit mistake that consumers make. What you may find surprising is that closing credit card accounts can hurt your credit score almost as badly as missing a payment. Not only is this the number one on the top five credit scoring mistakes, it’s also number one on the list of credit myths. Ironically, most consumers make this mistake based on poor advice from a mortgage lender as a strategy for improving their credit scores. A word of advice people, when you’re dealing with something as sensitive as your credit and credit scores, make sure you do your homework before trusting some of these so called ‘industry experts’ before following through with their advice. There are two important reasons why you should not close credit card accounts:
1. Eventually, the accounts will fall off of your credit reports. The information in your credit reports are subject to certain rules in regards to how long it can remain in the report. In most cases, credit information will remain in your credit reports for seven years from the account’s DLA or date of last activity. When an account is open, the DLA will continue to update each month and the open account will never reach that seven-year mark. If you close the account, the DLA will stop updating and the clock will start ticking. Eventually the account will be completely removed from your credit reports.
Why would this be a bad thing? It’s simple – you never want to get rid of old, positive information in your credit reports. This information actually helps your credit scores. Credit scores want to see this positive account information. They want to see your long, perfect history of making your payments on time because this information significantly helps your credit scores. This information significantly helps your credit scores so why would you ever want that history to disappear? You wouldn’t! Here’s an analogy for you: let’s say you made straight A’s in high school. What if the record of that perfect scholastic accomplishment were permanently deleted seven years after you graduated? Would you ever want that history deleted? Of course you wouldn’t. The same is true for the credit reporting environment.
So, what should you do with old credit cards that you don’t use any longer?
Click Here to Read On...
by Edward Jamison, Esq.
It’s surprising how many consumers make the same credit scoring mistakes over and over again. In an effort to educate consumers on credit and credit scoring, we’ve compiled 5 common credit scoring mistakes into a list that defines each mistake and explains why they are bad and how to avoid them:
Credit Mistake #1: Closing Credit Cards Accounts
This is probably THE biggest credit mistake that consumers make. What you may find surprising is that closing credit card accounts can hurt your credit score almost as badly as missing a payment. Not only is this the number one on the top five credit scoring mistakes, it’s also number one on the list of credit myths. Ironically, most consumers make this mistake based on poor advice from a mortgage lender as a strategy for improving their credit scores. A word of advice people, when you’re dealing with something as sensitive as your credit and credit scores, make sure you do your homework before trusting some of these so called ‘industry experts’ before following through with their advice. There are two important reasons why you should not close credit card accounts:
1. Eventually, the accounts will fall off of your credit reports. The information in your credit reports are subject to certain rules in regards to how long it can remain in the report. In most cases, credit information will remain in your credit reports for seven years from the account’s DLA or date of last activity. When an account is open, the DLA will continue to update each month and the open account will never reach that seven-year mark. If you close the account, the DLA will stop updating and the clock will start ticking. Eventually the account will be completely removed from your credit reports.
Why would this be a bad thing? It’s simple – you never want to get rid of old, positive information in your credit reports. This information actually helps your credit scores. Credit scores want to see this positive account information. They want to see your long, perfect history of making your payments on time because this information significantly helps your credit scores. This information significantly helps your credit scores so why would you ever want that history to disappear? You wouldn’t! Here’s an analogy for you: let’s say you made straight A’s in high school. What if the record of that perfect scholastic accomplishment were permanently deleted seven years after you graduated? Would you ever want that history deleted? Of course you wouldn’t. The same is true for the credit reporting environment.
So, what should you do with old credit cards that you don’t use any longer?
Click Here to Read On...
Monday, July 21, 2008
Understanding Your Credit Score
July 21, 2008
by Edward Jamison, Esq.
You’ve just applied for a mortgage or auto loan and your lender comes back with a three-digit number that summarizes your credit worthiness and you have no clue what that number really means. What is the difference between a 540, a 670 and a 780? If you’re not familiar with credit scores then these seemingly random numbers can make it difficult to determine where you stand. And in today’s difficult economic environment, you need every point you can get. In this article we’re going to find out exactly what these numbers mean to lenders – and to you.
Outstanding: 800+
If your credit score is over 800 then you’re pretty much the best of the best as far as the lending and insurance worlds are concerned. With scores this high, you represent an outstanding credit risk, almost non-existent, and you’ll qualify for the best deals. Consumers that score in the 800+ range typically have a long credit history with multiple credit accounts that have been paid on time for years. There are no derogatory records such as collections, bankruptcies or charge-off accounts and very little credit card debt. These people are almost immune to the credit crisis.
Very Good: 750 - 799
If your credit score is between the 750 – 799 range, lenders will view you as a very low credit risk and you’ll qualify for some of the lowest lending rates available. You manage your credit responsibly by paying your bills on time and keeping your credit balances very low in relation to the credit limits.
by Edward Jamison, Esq.
You’ve just applied for a mortgage or auto loan and your lender comes back with a three-digit number that summarizes your credit worthiness and you have no clue what that number really means. What is the difference between a 540, a 670 and a 780? If you’re not familiar with credit scores then these seemingly random numbers can make it difficult to determine where you stand. And in today’s difficult economic environment, you need every point you can get. In this article we’re going to find out exactly what these numbers mean to lenders – and to you.
*Range above based on the FICO® credit score, which is used by most lenders.
Outstanding: 800+
If your credit score is over 800 then you’re pretty much the best of the best as far as the lending and insurance worlds are concerned. With scores this high, you represent an outstanding credit risk, almost non-existent, and you’ll qualify for the best deals. Consumers that score in the 800+ range typically have a long credit history with multiple credit accounts that have been paid on time for years. There are no derogatory records such as collections, bankruptcies or charge-off accounts and very little credit card debt. These people are almost immune to the credit crisis.
Very Good: 750 - 799
If your credit score is between the 750 – 799 range, lenders will view you as a very low credit risk and you’ll qualify for some of the lowest lending rates available. You manage your credit responsibly by paying your bills on time and keeping your credit balances very low in relation to the credit limits.
Friday, July 18, 2008
How Medical Collections Hurt Credit Scores
July 18, 2008
by Edward Jamison, Esq.
We all know that ignoring our credit card bills will most likely lead to collections. We also know that if we break a lease and skip out on the last months rent, this too could lead to collections. What if we don’t pay a utility or phone bill for several months? Not only would we end up with no power or phone service, but you guessed it, we’d probably end up with collections as well. What we don’t expect is inefficient communication between our doctors and our insurance company damaging our credit and credit scores.
Between uninsured Americans and the bureaucratic red tape between large healthcare companies and insurance providers, medical collections have become increasingly common in consumer credit reports. The problem is that a lot of consumers believe that medical collections are overlooked or excluded from their credit and credit scores. Unfortunately, medical collections are no different than other types of collections and can wreak havoc on your credit scores just as easily. The most frustrating thing with medical collections is that in most cases the consumer isn’t the cause, yet they end up paying the price as though it were.
One reason for the large misconception about medical collections is due to how some industries view them. While medical collections hurt your credit scores just as badly as other collections, most industries don’t view medical collections as negatively as other collections. The mortgage industry in particular, will frown on unpaid collections but tend to overlook or turn a blind eye on unpaid medical collections. Even FHA guidelines aren’t overly concerned with medical collections when determining a consumer’s eligibility for a mortgage loan. This begs the question, “why do credit scoring models view medical collections the same way they view non-medical collections?” There are a couple of reasons:
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