LifeLock –
Last month I wrote about credit and identity theft related services and how some of them either don’t really deliver what they promise. Apparently the Federal Trade Commission and the attorney generals from 35 different states agreed with me because on March 10th 2010 (or some time soon before) LifeLock agreed to a $12 million settlement. This is a very significant settlement especially for a deceptive advertising case. LifeLock probably didn’t want to spend the time or money to defend the lawsuit so a settlement was their way of protecting against downside financial risk.
Many consumers, however, find LifeLock’s advertising perfectly clear and think the value they receive for their $10 per month charge is well worth it. According to Aaron Freeman, a LifeLock subscriber since 2005, “As recently as 2010, a man in Brooklyn tried to withdraw money from my bank account using a driver's license with my information and his picture. LifeLock has been there for me for each incident. LifeLock agents are proactive and take immediate action while I'm busy at work. I consider the $10 monthly fee to be credit insurance and I'm grateful for their services.” The comments above read suspiciously like they were professionally written as a press release so take them with a grain of sale. I’ve never heard anyone speak so highly of any subscription service regardless of how much they enjoyed it.
Gift Card Protections Coming Soon –
When was the last time you tried to use an old gift card and found out, at the register, that the card had expired or the value was much less than when you originally received it? It’s really no different than trying to use a credit card that is either maxed out or has been declined by the issuer. In either case the end result is the same; you’re unable to make your purchase and you’re embarrassed. But with the case of the gift card, there is no happy ending because you can’t get back the value.
This will be changing thanks to the CARD Act. On August 22, 2010 a provision of the CARD Act takes affect that will provide more aggressive consumer protection rules regarding the issuance of gift cards. Starting in August gift cards will have a 5-year life before they will fully expire. This is good news and bad news. Good news in that if you are given a gift card after August 22nd and then forget about it for months or even years you’ll still be able to use it as long as it hasn’t been a full 5 years. The bad news is that now you really don’t have any sense of urgency to use the card, which means it’s much more likely that you’ll toss it aside and not use it any time soon.
This CARD Act provision does allow for fees to be charged for inactivity or prolonged non-use of a gift card. And, the issuer must notify or otherwise disclose that they intend to charge a fee for inactivity. Now, clearly they aren’t going to send you a bill in the mail for not using your gift card. First off, most gift cards are given to other people so he who bought it is unlikely to actually have it. Second, the gift card issuer will simply reduce the value of the card an equivalent amount to whatever fee they want to charge.
The definition of inactivity in this particular discussion is 12 months. So, if you toss your gift card in a drawer and forget about it then you’ll get charged the fee on some day during the 13th month after you received it. Frankly, you should use the card immediately anyway rather than let it sit and collect dust.
There are exceptions to the gift card provisions of the CARD Act. If the card is being used as a promotional award or isn’t the type of card that is marketed to the masses or is available for sale to anyone then there is no protection from expiration or accelerated reduction in value. For example, some cell service providers will offer a rebate, say $100, in exchange for you buying a certain type of cell phone. In some cases these rebates are in the form of a gift card rather than a check. Those are awards used in a rebate promotion so there is no protection provided in the CARD Act.
The award card previously described is also not for sale or marketed to the general public. So, again, there is no protection afforded in the CARD Act. The bottom line in this case is to use the card as quickly as possible so you don’t have to worry about fees or expiration dates.
There are some people who really don’t care for this provision of the CARD Act for a variety of reasons. First, according to the White House the CARD Act was meant to protect consumers from abusive card issuers. Have any of you honestly felt abused by the company whom you purchased your gift card from? It’s not like they can close an account, jack up an interest rate or tack on a $120 annual fee. They also can’t report your activity to the credit bureaus.
Additionally, this makes it more difficult for public companies to claim the revenue from sales of gift cards. They can sell you the card but they can’t claim the revenue publicly until the card has been used or has expired. If it were up to them they’d really like to be able to claim the revenue immediately but the boys from Enron ruined that for everyone.
And lastly, do any of your remember what cash for clunkers did for car sales in 2009? The auto manufactures killed it the second half of 2009 because of the financial incentive for us to go out and trade in our old cars for new cars. This meant more inventory moving off lots, more sales people actually earning an income, more money being thrown back into the local economy, more cars rolling off the lines in Detroit and elsewhere and more loans being placed with local and national auto lenders.
The CARD Act could have been a “cash for clunkers” equivalent if they would have taken the exact opposite approach. If they would have made it illegal for any gift card to not expire after 6 months then practically all gift cards would be used almost immediately because it was like cash that had been set on fire…use it or lose it!! Nice job boys.
Friday, April 23, 2010
Friday, March 19, 2010
What You Need to Know about Credit and Identify Theft Related Services
You can’t turn on the television, watch a sporting event, or surf the Internet without being hit up with advertisements trying to convince you to buy some sort of credit or identity theft protection related product. Freecreditreport.com, Lifelock, FreeScore.com, and Privacy Matters (aka FreeTripleScore.com) dominate the airwaves, web and overall marketing of these services. The problem with all of these services is that you can do much of what’s being advertised for free or the marketing is misleading.
Take for example FreeScore.com. This is the service being plugged by Ben Stein from Ferris Bueller’s Day Off fame. The problem is the advertising of their service pushes the bounds when it comes to truth in marketing. According to Stein if you ““wanna get a new job, you’re at the mercy of your credit score.” Of course this is not true as employers don’t have access to your credit scores as part of their employment screening processes. They do have access to your credit reports though.
Additionally Stein states that the service “gives me unlimited access to the 3 major credit reports and scores.” Now, I’m pretty sure anyone in the credit industry would recognize the FICO® score as being the “major” credit score used by the lending world. In fact, according to the FICO website 90% of the largest banks use your FICO score to make credit decisions. The score being sold by FreeScore.com (yes, you are signing up for a subscription service when you get your score so I don’t call it free) is likely your TransRisk Score or VantageScore. Neither of those scores are can be called your “major credit score.”
Next is LifeLock. This is the service hocked by Todd Davis, the company’s CEO, as he supposedly drives around the streets with his Social Security Number printed on the side of a truck. I wasn’t there and I didn’t see the truck so I’m calling bologna on that gimmick. LifeLock isn’t a credit monitoring service but they do market themselves as the “#1 Identity Theft Protection” service.
A description of how their service works is on their website. So, here’s a breakdown of some of what you get for $10 per month, and how you can get it for free.
- Monitoring of unregulated Internet and file sharing networks for your identity information. A free alternative would be setting up Google alerts with your name and address. You can do this here for free… http://www.google.com/alerts
- Sex offender records for your zip code. A free alternative can be found via a variety of websites. Google the term “sex offender registry” and be sure to add your city or state name at the end. For example, here’s Illinois’ list. http://www.isp.state.il.us/sor/sor.cfm
- Free annual credit reports. You can do this for free here… https://www.annualcreditreport.com/cra/index.jsp. In all fairness to LifeLock, they do say you can do this on your own for free.
- Reduction in preapproved credit offers. On one of their television commercials they state, “You’ll see a huge reduction in junk mail and preapproved offers.” You can do this for free here… https://www.optoutprescreen.com/?rf=t
- $1 million dollar service guarantee. On one of their television commercials they state, “If anything happens while you’re a client of LifeLock we will cover all losses and all expenses up to one million dollars.” But on their website they state they will NOT cover “lost wages or business profits, loss of business or lost opportunities and direct out-of-pocket expenses like postage stamps, gas or mileage to go to local authorities, or any notary public fees, etc. And they will not cover “any direct losses as a result of the theft.” That hardly sounds like ALL losses and ALL expenses. And the “etc” in the list of things they don’t cover leaves the door open for the list to be much larger.
Next is FreeCreditReport.com, which is owned by Experian. And, twice the Federal Trade Commission has sued them because of their marketing. The credit report being given away isn’t really free; it’s free only if you sign up for a trial period to a credit monitoring service. And if you don’t cancel the service during the trial period then you are billed on a monthly basis for the credit monitoring subscription.
In fact, on April 1, 2010 a new law goes into affect that will clean up how they market their conditionally free credit report. They, and any other service that uses a free credit report as a loss leader, must state the following…
THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV.
You have the right to a free credit report from AnnualCreditReport.com
or 877-322-8228, the ONLY authorized source under federal law.
And finally we end with FreeTripleScore.com also known as Privacy Matters 1-2-3. As with FreeScore.com the data being provided is coming from TransUnion, which means the scores being “given” away are either your TransRisk or VantageScore scores. And, despite their efforts to not disclose their ownership, it appears that the same company is behind FreeTripleScore and FreeScore. Nice try guys.
The new law requiring the more overt disclosure about free credit reports will help to clean up what many believe is a marketplace filled with out of control and deceptive marketing practices. And remember, before you choose to spend the money on any of the credit related products and services listed you should at the very least research free options.
Take for example FreeScore.com. This is the service being plugged by Ben Stein from Ferris Bueller’s Day Off fame. The problem is the advertising of their service pushes the bounds when it comes to truth in marketing. According to Stein if you ““wanna get a new job, you’re at the mercy of your credit score.” Of course this is not true as employers don’t have access to your credit scores as part of their employment screening processes. They do have access to your credit reports though.
Additionally Stein states that the service “gives me unlimited access to the 3 major credit reports and scores.” Now, I’m pretty sure anyone in the credit industry would recognize the FICO® score as being the “major” credit score used by the lending world. In fact, according to the FICO website 90% of the largest banks use your FICO score to make credit decisions. The score being sold by FreeScore.com (yes, you are signing up for a subscription service when you get your score so I don’t call it free) is likely your TransRisk Score or VantageScore. Neither of those scores are can be called your “major credit score.”
Next is LifeLock. This is the service hocked by Todd Davis, the company’s CEO, as he supposedly drives around the streets with his Social Security Number printed on the side of a truck. I wasn’t there and I didn’t see the truck so I’m calling bologna on that gimmick. LifeLock isn’t a credit monitoring service but they do market themselves as the “#1 Identity Theft Protection” service.
A description of how their service works is on their website. So, here’s a breakdown of some of what you get for $10 per month, and how you can get it for free.
- Monitoring of unregulated Internet and file sharing networks for your identity information. A free alternative would be setting up Google alerts with your name and address. You can do this here for free… http://www.google.com/alerts
- Sex offender records for your zip code. A free alternative can be found via a variety of websites. Google the term “sex offender registry” and be sure to add your city or state name at the end. For example, here’s Illinois’ list. http://www.isp.state.il.us/sor/sor.cfm
- Free annual credit reports. You can do this for free here… https://www.annualcreditreport.com/cra/index.jsp. In all fairness to LifeLock, they do say you can do this on your own for free.
- Reduction in preapproved credit offers. On one of their television commercials they state, “You’ll see a huge reduction in junk mail and preapproved offers.” You can do this for free here… https://www.optoutprescreen.com/?rf=t
- $1 million dollar service guarantee. On one of their television commercials they state, “If anything happens while you’re a client of LifeLock we will cover all losses and all expenses up to one million dollars.” But on their website they state they will NOT cover “lost wages or business profits, loss of business or lost opportunities and direct out-of-pocket expenses like postage stamps, gas or mileage to go to local authorities, or any notary public fees, etc. And they will not cover “any direct losses as a result of the theft.” That hardly sounds like ALL losses and ALL expenses. And the “etc” in the list of things they don’t cover leaves the door open for the list to be much larger.
Next is FreeCreditReport.com, which is owned by Experian. And, twice the Federal Trade Commission has sued them because of their marketing. The credit report being given away isn’t really free; it’s free only if you sign up for a trial period to a credit monitoring service. And if you don’t cancel the service during the trial period then you are billed on a monthly basis for the credit monitoring subscription.
In fact, on April 1, 2010 a new law goes into affect that will clean up how they market their conditionally free credit report. They, and any other service that uses a free credit report as a loss leader, must state the following…
THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV.
You have the right to a free credit report from AnnualCreditReport.com
or 877-322-8228, the ONLY authorized source under federal law.
And finally we end with FreeTripleScore.com also known as Privacy Matters 1-2-3. As with FreeScore.com the data being provided is coming from TransUnion, which means the scores being “given” away are either your TransRisk or VantageScore scores. And, despite their efforts to not disclose their ownership, it appears that the same company is behind FreeTripleScore and FreeScore. Nice try guys.
The new law requiring the more overt disclosure about free credit reports will help to clean up what many believe is a marketplace filled with out of control and deceptive marketing practices. And remember, before you choose to spend the money on any of the credit related products and services listed you should at the very least research free options.
Tuesday, February 9, 2010
Everything You Need To Know About Collection Accounts - And More!
By: Shonnie Fischer - CreditCRM Affilaite
Of all of the questions I get regarding consumer credit reporting and credit scoring, collection account inquiries seems to be at the top of the list on a daily basis. This months newsletter is dedicated to the subject of collection accounts and what affect they have on a consumers credit report. Additionally, the most prevalent “credit myths” associated with collection accounts will also be addressed in this article. Far too often myth vs. fact gets passed onto the consumer which in most cases causes further undue damage to the consumers credit report and scores respectively.
Most consumers have a general understanding of what a collection account is. By definition, a collection account occurs if you stop paying on any type of debt where a balance is owed and remains unpaid per the terms of the original agreement contractually entered into by the consumer and financial entity. The lender then takes action to collect on the unpaid and/or deficiency balance by transferring the status of the account from a routine account to a collection account. The lender may have an internal collection department that will then take over the account to collect on, or the lender may sell or assign your account to a outside third party collection agency. Either way the bottom line and single objective is to collect on the remaining debt owed.
Pretty basic so far.....
Collection agencies specialize in collecting money from people who refuse to pay their debt. A collection agency’s main leverage over a consumer, which is also the single most important motivational tactic they use to get a consumer to pay, is by reporting the collection account to the credit bureaus. Any collection activity that reports to the credit bureaus will hurt your FICO® scores. Even if it is a single collection account that reports, you can expect a significant drop in your credit scores once it hits the credit bureaus. As you can imagine, having multiple collection accounts will cause your credit score to plummet even further as you are adding multiple layers of major derogatory information a.k.a “risk” to your credit file.
With respect to the FICO® credit scoring system, collection accounts are considered a major derogatory “event”. When a collection account is reported, the FICO® credit scoring software considers two things and two things only when factoring in a collection account into the credit scoring system. The first factor is that collection account activity exists and is a part of your credit file, which as previously stated is considered a major derogatory account. The second factor is the age of the account relative to the date of original delinquency with the original creditor that lead to the collection account having to be established in the first place. Specifically, this particular credit scoring component as explained is the perfect segue into our first two (and most prevalent) credit myths.
Myth #1- Paying Off A Collection Account Will Increase A Consumers Credit Score.
This is absolutely false!! If you pay off a collection account, typically the effect on the credit score will be neutral. If your scores do increase it will not be by much - guaranteed! Whether or not a collection is reported as paid or unpaid is NOT a credit scoring component. What the FICO® credit scoring system factors in is the fact that you went to collection in the first place. As stated above collection accounts are scored as “events” with the only other credit scoring factor being the age of the account. Collection accounts regardless of the paid vs. unpaid status are indicative of your previous payment history and therefore used as a predictive measure of future credit risk as assessed in the credit scoring software.
The Fair Isaac Corporation, the creators of the FICO® credit scoring software have this information posted on their website myfico.com under the following link: http://www.myfico.com/CreditEducation/Questions/Collections.aspx.
Myth #2- Paying Off Collection Accounts Will Remove It From Your Credit File.
Again, totally false. Unfortunately this where most consumers make an incorrect assumption only to find the account still remains on their report the next time their credit gets pulled. Paying off a collection account will not cause or force automatic removal from your credit report. What will happen once the account is paid, is the balance is updated to reflect the account has been paid in full and the account will continue to report accordingly. Collection accounts whether paid or unpaid along with derogatory information outside of public records, can report for up to 7 years based upon the date of original delinquency with the original creditor. Prevalent with lending and/or industry professionals, the next myth we will address is not so much a consumer credit myth as it is one that is more common with lending specific and/or industry professionals who work with analyzing consumer credit.
Myth #3- Paying Off Collection Accounts Does Not Lower A Consumers Credit Score.
In all fairness, this is a current myth that is based on a past truth. So those of you reading this article who knew this to be the case in days past, let me confirm you are not losing your mind. In previous credit scoring models (still commercially available as late as 2008) when a collection account was paid off it would update the date of last activity which in turn would report into the credit scoring software as if it were a brand new collection account. The date of last activity used to be a credit scoring component in the FICO® credit scoring software, however in 2007 the Fair Isaac Corporation agreed with debt collectors
that a consumer should not be penalized for paying off old debt accounts. While it is true that any current activity causes the date of last activity to reset, FICO® has revised their scoring software to only consider the date of original delinquency for scoring purposes.
To further validate that this is in fact a current truth vs. future feature to come, in September 2009 John Ulzheimer, credit scoring and credit reporting expert and author who is also the President of Consumer Education for Credit.com, went straight to the source and interviewed Ethan Dornhelm, Principal Scientist at FICO® who is also a FICO® score developer to get further clarity on this subject. Mr. Dornhelm confirmed that “The FICO® score is focused on the presence of the collection and how recently the collection occurred. This is true at all credit bureaus and across all generations of the FICO® scoring models still
commercially available today.”
So now that we have covered what a collection account is, what impact it has on a consumers credit score, as well as the most prevalent credit myths associated with collection accounts, what is the best way to handle collection accounts or recover from the adverse affect they have on a consumers credit report?
1- The most obvious answer is to avoid them all together. Pay your bills on time and if ever you find yourself in a financially distressed situation, try to work out a payment plan with the creditor prior to them having to take further collection
action. Be proactive and be honest about your situation with creditors. This is not always going to be an across the board resolve, but at least it lets the creditor know that your are not intentionally disregarding your obligation to pay them. They may or may not do a work out plan with you, however it is worth the effort to contact them first vs. having them assume the worst case which will without question be to start immediate collection action against you to collect on the money owed to them.
2- If number one can not be avoided and an account has already gone into collection, work with the collection agency and try to negotiate deletion of the account in exchange for payment. Not every collection agency will negotiate these types of terms, however I can tell you from my own personal experience that four out of five will. Collection agencies work on commission and/or a consignment fee basis, so at the end of the day they are truly only interested in collecting on the debt and typically will negotiate for deletion when payment in full is received. For consumers this is well worth doing the leg work to try and negotiate this type of agreement with them as this is THE ONLY way to get a valid collection account completely removed from your credit report.
3- If you have a collection account that you do not agree with, or do not believe belongs to you, you do have rights under the Fair Debt Collections Practices Act to dispute the debt. Ignoring the debt or otherwise refusing to pay the collection agency to punish them for what you perceive to be their error is not the way to get this resolved. This type of action will only continue to hurt you as collection agencies are famous for selling debt multiple times over if uncollectible. Each time that happens it adds additional new collection activity to your credit report causing a layer effect. You do have rights under the Fair Debt Collections
Practices Act that allow you to properly and legally dispute the validity of a collection account reporting on your credit report. A summary of your rights is available on the RE Credit Repair website under the Credit Resources section link: http://www.recreditfix.com/credit_resources.php I hope you have enjoyed this publication and it has provided you some clarification and/or helped you to better understand collection accounts in general. Trust me - speaking from personal experience this is one of the most complex areas outside of credit scoring itself to master. If you have any further questions or need personal assistance regarding collection accounts or any other credit related matter please contact me direct via email or my office line anytime.
All my best to you and thank you for reading this months publication.
Of all of the questions I get regarding consumer credit reporting and credit scoring, collection account inquiries seems to be at the top of the list on a daily basis. This months newsletter is dedicated to the subject of collection accounts and what affect they have on a consumers credit report. Additionally, the most prevalent “credit myths” associated with collection accounts will also be addressed in this article. Far too often myth vs. fact gets passed onto the consumer which in most cases causes further undue damage to the consumers credit report and scores respectively.
Most consumers have a general understanding of what a collection account is. By definition, a collection account occurs if you stop paying on any type of debt where a balance is owed and remains unpaid per the terms of the original agreement contractually entered into by the consumer and financial entity. The lender then takes action to collect on the unpaid and/or deficiency balance by transferring the status of the account from a routine account to a collection account. The lender may have an internal collection department that will then take over the account to collect on, or the lender may sell or assign your account to a outside third party collection agency. Either way the bottom line and single objective is to collect on the remaining debt owed.
Pretty basic so far.....
Collection agencies specialize in collecting money from people who refuse to pay their debt. A collection agency’s main leverage over a consumer, which is also the single most important motivational tactic they use to get a consumer to pay, is by reporting the collection account to the credit bureaus. Any collection activity that reports to the credit bureaus will hurt your FICO® scores. Even if it is a single collection account that reports, you can expect a significant drop in your credit scores once it hits the credit bureaus. As you can imagine, having multiple collection accounts will cause your credit score to plummet even further as you are adding multiple layers of major derogatory information a.k.a “risk” to your credit file.
With respect to the FICO® credit scoring system, collection accounts are considered a major derogatory “event”. When a collection account is reported, the FICO® credit scoring software considers two things and two things only when factoring in a collection account into the credit scoring system. The first factor is that collection account activity exists and is a part of your credit file, which as previously stated is considered a major derogatory account. The second factor is the age of the account relative to the date of original delinquency with the original creditor that lead to the collection account having to be established in the first place. Specifically, this particular credit scoring component as explained is the perfect segue into our first two (and most prevalent) credit myths.
Myth #1- Paying Off A Collection Account Will Increase A Consumers Credit Score.
This is absolutely false!! If you pay off a collection account, typically the effect on the credit score will be neutral. If your scores do increase it will not be by much - guaranteed! Whether or not a collection is reported as paid or unpaid is NOT a credit scoring component. What the FICO® credit scoring system factors in is the fact that you went to collection in the first place. As stated above collection accounts are scored as “events” with the only other credit scoring factor being the age of the account. Collection accounts regardless of the paid vs. unpaid status are indicative of your previous payment history and therefore used as a predictive measure of future credit risk as assessed in the credit scoring software.
The Fair Isaac Corporation, the creators of the FICO® credit scoring software have this information posted on their website myfico.com under the following link: http://www.myfico.com/CreditEducation/Questions/Collections.aspx.
Myth #2- Paying Off Collection Accounts Will Remove It From Your Credit File.
Again, totally false. Unfortunately this where most consumers make an incorrect assumption only to find the account still remains on their report the next time their credit gets pulled. Paying off a collection account will not cause or force automatic removal from your credit report. What will happen once the account is paid, is the balance is updated to reflect the account has been paid in full and the account will continue to report accordingly. Collection accounts whether paid or unpaid along with derogatory information outside of public records, can report for up to 7 years based upon the date of original delinquency with the original creditor. Prevalent with lending and/or industry professionals, the next myth we will address is not so much a consumer credit myth as it is one that is more common with lending specific and/or industry professionals who work with analyzing consumer credit.
Myth #3- Paying Off Collection Accounts Does Not Lower A Consumers Credit Score.
In all fairness, this is a current myth that is based on a past truth. So those of you reading this article who knew this to be the case in days past, let me confirm you are not losing your mind. In previous credit scoring models (still commercially available as late as 2008) when a collection account was paid off it would update the date of last activity which in turn would report into the credit scoring software as if it were a brand new collection account. The date of last activity used to be a credit scoring component in the FICO® credit scoring software, however in 2007 the Fair Isaac Corporation agreed with debt collectors
that a consumer should not be penalized for paying off old debt accounts. While it is true that any current activity causes the date of last activity to reset, FICO® has revised their scoring software to only consider the date of original delinquency for scoring purposes.
To further validate that this is in fact a current truth vs. future feature to come, in September 2009 John Ulzheimer, credit scoring and credit reporting expert and author who is also the President of Consumer Education for Credit.com, went straight to the source and interviewed Ethan Dornhelm, Principal Scientist at FICO® who is also a FICO® score developer to get further clarity on this subject. Mr. Dornhelm confirmed that “The FICO® score is focused on the presence of the collection and how recently the collection occurred. This is true at all credit bureaus and across all generations of the FICO® scoring models still
commercially available today.”
So now that we have covered what a collection account is, what impact it has on a consumers credit score, as well as the most prevalent credit myths associated with collection accounts, what is the best way to handle collection accounts or recover from the adverse affect they have on a consumers credit report?
1- The most obvious answer is to avoid them all together. Pay your bills on time and if ever you find yourself in a financially distressed situation, try to work out a payment plan with the creditor prior to them having to take further collection
action. Be proactive and be honest about your situation with creditors. This is not always going to be an across the board resolve, but at least it lets the creditor know that your are not intentionally disregarding your obligation to pay them. They may or may not do a work out plan with you, however it is worth the effort to contact them first vs. having them assume the worst case which will without question be to start immediate collection action against you to collect on the money owed to them.
2- If number one can not be avoided and an account has already gone into collection, work with the collection agency and try to negotiate deletion of the account in exchange for payment. Not every collection agency will negotiate these types of terms, however I can tell you from my own personal experience that four out of five will. Collection agencies work on commission and/or a consignment fee basis, so at the end of the day they are truly only interested in collecting on the debt and typically will negotiate for deletion when payment in full is received. For consumers this is well worth doing the leg work to try and negotiate this type of agreement with them as this is THE ONLY way to get a valid collection account completely removed from your credit report.
3- If you have a collection account that you do not agree with, or do not believe belongs to you, you do have rights under the Fair Debt Collections Practices Act to dispute the debt. Ignoring the debt or otherwise refusing to pay the collection agency to punish them for what you perceive to be their error is not the way to get this resolved. This type of action will only continue to hurt you as collection agencies are famous for selling debt multiple times over if uncollectible. Each time that happens it adds additional new collection activity to your credit report causing a layer effect. You do have rights under the Fair Debt Collections
Practices Act that allow you to properly and legally dispute the validity of a collection account reporting on your credit report. A summary of your rights is available on the RE Credit Repair website under the Credit Resources section link: http://www.recreditfix.com/credit_resources.php I hope you have enjoyed this publication and it has provided you some clarification and/or helped you to better understand collection accounts in general. Trust me - speaking from personal experience this is one of the most complex areas outside of credit scoring itself to master. If you have any further questions or need personal assistance regarding collection accounts or any other credit related matter please contact me direct via email or my office line anytime.
All my best to you and thank you for reading this months publication.
Thursday, February 4, 2010
Calculating Utilization, Let Me Count The Ways
I think I’ve written about utilization, the relationship between the balances and credit limits on credit cards expressed as a percentage, for as long as I’ve owned a computer. But this topic has legs as everlasting as the Gobstopper which shares the adjective. So, for the first time in 2010 and what has to be the 100th time overall, here’s how utilization is calculated.
First off, utilization 101…Mark has a credit card with a $1,000 credit limit. That is, his credit reports show a $1,000 credit limit. His current balance as reported on his credit reports is $500. The utilization of that card is 50% because the balance ($500) divided by the credit limit ($1,000) equals .50 or 50%. Now we can get started.
It’s important to note that the figures I use for my next few examples HAVE to be reported on your credit reports to make these math problems accurate. That’s the bottom line. If it’s not on our credit report then all bets are off.
Line Item Utilization – This is the same calculation as described above for Mark but done for every single open credit card or credit card with a balance. So if you have 10 open credit cards, and open in this examples means it’s not closed, then you’ll have 10 different line item measurements. This is important because the number of highly utilized credit cards on your credit report is a consideration in most credit and insurance risk models.
Aggregate Utilization – This is the same calculation as described above for Mark with one huge difference. For this calculation we are going to combine all of the open credit cards on a credit report to do the math. For example, if I have two credit cards and each has a $5,000 balance and a $10,000 credit limit then I have $10,000 in aggregate balances and $20,000 in aggregate credit limits. Divide $10,000 by $20,000 and you again get .50 or 50%. This measurement is important because the higher utilization the percentage the more risky you are to lenders and insurance companies and the less attractive their terms will be.
High Balance in Lieu of Credit Limits – In some cases your credit cards will not have a credit limit reported. (Note: I’m not talking about charge cards. I’m talking about revolving credit cards that are not reporting a credit limit). In those cases most credit scoring models will look for the historical highest balance, which is typically reported by the credit bureaus, and use that figure in lieu of the missing credit limit. So, if I have a credit card with a $10,000 credit limit but it’s not being reported then the credit score will look for my highest balance figure. If it finds, for example, that your highest historical balance was $7,500 then that’s the figure it will use in lieu of the missing $10,000. So, with my same $5,000 balance and a $7,500 “pseudo limit” I appear to be 67% utilized on that card instead of the true 50%. This is a line item measurement and an aggregate measurement, meaning it is the same regardless of which is being calculated. This practice of withholding credit limits got the credit bureaus sued in a class action case several years ago because Capital One was not reporting credit limits. The case was dismissed because, in my opinion, the court simply couldn’t grasp the details of the problem and the breadth of its impact. Shortly after the lawsuit was filed Capital One began reporting credit limits for the first time in their existence. So, some good did come out of the case.
Missing High Balance and Missing Credit Limit - Now this is a tricky one. In some examples a credit card account will be missing the credit limit and the highest balance. Most credit scoring systems will simply ignore the account for the above referenced utilization calculations because, well, you have no limit to include in the math. This can help the consumer’s scores and it can also hurt the consumer’s scores. For example, if you have a very high balance on that particular credit card but no limit or high credit then that balance can’t increase your aggregate utilization because it’s ignored for that math. It can hurt your score in the example where you have a very low balance relative to the credit limit, which isn’t reported because you don’t get any value of the large difference between the balance and the limit, which is called open-to-buy.
Shadow Limits – A shadow limit isn’t a credit card that’s been left under a leafy tree. Instead it’s the unpublished maximum preset spending limit that all credit cards have, even charge cards that are marketed as not having a preset spending limit. That would suggest that you could use your charge card to buy a $100,000 Mercedes, if the dealership took plastic for such a purchase. And while some very wealthy individuals might be given that amount of shopping power, it’s atypical. The shadow limit is not reported to the credit bureaus so the high balance is the next best figure to use when calculating utilization. And if it’s a charge card the newer FICO scores will not count it in utilization at all. There are, however, revolving credit cards that are also marketed as not having a preset spending limit and, thus, a shadow limit.
The moral of this story is simple; you’d like to do business with credit card issuers who do report the credit limit to all three credit bureaus. It give you the ability to strategically use that card so that you never exceed some self applied utilization percentage. For example, if you know your credit card has a credit limit of $10,000 (and it’s being reported to the credit bureaus) and you never want to exceed 10% utilization on that card then you know you can never allow more than $1,000 to be reported to the credit bureaus as a balance.
First off, utilization 101…Mark has a credit card with a $1,000 credit limit. That is, his credit reports show a $1,000 credit limit. His current balance as reported on his credit reports is $500. The utilization of that card is 50% because the balance ($500) divided by the credit limit ($1,000) equals .50 or 50%. Now we can get started.
It’s important to note that the figures I use for my next few examples HAVE to be reported on your credit reports to make these math problems accurate. That’s the bottom line. If it’s not on our credit report then all bets are off.
Line Item Utilization – This is the same calculation as described above for Mark but done for every single open credit card or credit card with a balance. So if you have 10 open credit cards, and open in this examples means it’s not closed, then you’ll have 10 different line item measurements. This is important because the number of highly utilized credit cards on your credit report is a consideration in most credit and insurance risk models.
Aggregate Utilization – This is the same calculation as described above for Mark with one huge difference. For this calculation we are going to combine all of the open credit cards on a credit report to do the math. For example, if I have two credit cards and each has a $5,000 balance and a $10,000 credit limit then I have $10,000 in aggregate balances and $20,000 in aggregate credit limits. Divide $10,000 by $20,000 and you again get .50 or 50%. This measurement is important because the higher utilization the percentage the more risky you are to lenders and insurance companies and the less attractive their terms will be.
High Balance in Lieu of Credit Limits – In some cases your credit cards will not have a credit limit reported. (Note: I’m not talking about charge cards. I’m talking about revolving credit cards that are not reporting a credit limit). In those cases most credit scoring models will look for the historical highest balance, which is typically reported by the credit bureaus, and use that figure in lieu of the missing credit limit. So, if I have a credit card with a $10,000 credit limit but it’s not being reported then the credit score will look for my highest balance figure. If it finds, for example, that your highest historical balance was $7,500 then that’s the figure it will use in lieu of the missing $10,000. So, with my same $5,000 balance and a $7,500 “pseudo limit” I appear to be 67% utilized on that card instead of the true 50%. This is a line item measurement and an aggregate measurement, meaning it is the same regardless of which is being calculated. This practice of withholding credit limits got the credit bureaus sued in a class action case several years ago because Capital One was not reporting credit limits. The case was dismissed because, in my opinion, the court simply couldn’t grasp the details of the problem and the breadth of its impact. Shortly after the lawsuit was filed Capital One began reporting credit limits for the first time in their existence. So, some good did come out of the case.
Missing High Balance and Missing Credit Limit - Now this is a tricky one. In some examples a credit card account will be missing the credit limit and the highest balance. Most credit scoring systems will simply ignore the account for the above referenced utilization calculations because, well, you have no limit to include in the math. This can help the consumer’s scores and it can also hurt the consumer’s scores. For example, if you have a very high balance on that particular credit card but no limit or high credit then that balance can’t increase your aggregate utilization because it’s ignored for that math. It can hurt your score in the example where you have a very low balance relative to the credit limit, which isn’t reported because you don’t get any value of the large difference between the balance and the limit, which is called open-to-buy.
Shadow Limits – A shadow limit isn’t a credit card that’s been left under a leafy tree. Instead it’s the unpublished maximum preset spending limit that all credit cards have, even charge cards that are marketed as not having a preset spending limit. That would suggest that you could use your charge card to buy a $100,000 Mercedes, if the dealership took plastic for such a purchase. And while some very wealthy individuals might be given that amount of shopping power, it’s atypical. The shadow limit is not reported to the credit bureaus so the high balance is the next best figure to use when calculating utilization. And if it’s a charge card the newer FICO scores will not count it in utilization at all. There are, however, revolving credit cards that are also marketed as not having a preset spending limit and, thus, a shadow limit.
The moral of this story is simple; you’d like to do business with credit card issuers who do report the credit limit to all three credit bureaus. It give you the ability to strategically use that card so that you never exceed some self applied utilization percentage. For example, if you know your credit card has a credit limit of $10,000 (and it’s being reported to the credit bureaus) and you never want to exceed 10% utilization on that card then you know you can never allow more than $1,000 to be reported to the credit bureaus as a balance.
Wednesday, January 6, 2010
What Did We Experience in 2009 and What Should We Do in 2010?
2009 was a historical year in the world of consumer credit. We saw property values decline, lenders stop lending, credit card issuers crank up their abusive behavior, a new Federal law passed and a historically high number of credit related lawsuits. The following is a brief synopsis of 2009 and what consumer should do to put themselves in the best possible position for 2010.
Many of us received a letter (or letters) from our credit card issuers with similar messages;
· Your credit line has been lowered to reflect your spending
· Your account has been closed because we believe your card is being used in a manner inconsistent with your Cardmember agreement
· Given the size of your credit line and the way you have historically used your account, we have adjusted your credit line
· We are increasing the Annual Percentage Rates (APR) on your account to 25.49%
· A new service charge of $10 per month will be applied to your account
2009 was surely the year of the credit card issuer’s reign of terror against their cardholders. According to various surveys at least 35% of the population acknowledged experiencing some sort of adverse change to the terms of their credit card account. And, according to two FICO studies the median score for consumer who saw their credit limits involuntarily reduced was 770, which means that credit line decrease really didn’t have anything to do with elevated credit risk.
Of course this abusive behavior lead to the passage of the Credit Card Responsibility, Accountability and Disclosure Act of 2009, or CARD Act for short. This act provides the following rights to cardholders, among others…
· A guaranteed 21 day grace period on payments
· 45 days advance notice of any interest rate increases
· Tough rules around issuing credit cards to consumers who are under 21 years old
· Restrictions on when card issuers can increase your interest rates, and a method whereby consumers can earn back their lower rates by making their payments on time
· Clearer disclosure of account terms before an account is opened
· Restrictions on over limit fees. If a consumer has not “opted in” to allow a credit card issuer to approve a transaction that puts you in an over limit positions, they have to either decline the transaction or not charge you the over limit fee
· No additional fees because of the method of payment
· No more double cycle billing, the method of using the prior month’s balance to determine interest charges for the current month
· Application of payments above the minimum now have to be applied to the balance with the highest interest rate
· Gift cards won’t be able to expire for at least five years. And inactivity fees on gift cards will be banned
Unfortunately 2009 continued to produce decreased property values, which means no equity or worse, negative equity. And while consumers are comfortable with negative equity in their auto loans, they are not used to negative equity in their homes. Your home is your largest investment and it has historically increased in value. This leads to wealth building, a sizable tax deduction, and access to capital in order to send children to college, pay down credit card debt or fund home improvements.
The loss of home equity also lead to a significant number of home equity lines (HELOCs) being cancelled by lenders. A HELOC had always been a secured loan, secured by the perceived value in your home. But, with the home values dropping many HELOCS became huge unsecured lines of credit and many lenders simply weren’t comfortable with the lines any longer. The problem with the cancellations is that most consumers were never notified that their equity lines had been cancelled and didn’t find out until they wrote a check from the line, a large check in many cases, which bounced.
2009 was also a banner year for attorneys involved in credit related litigation, specifically Fair Debt Collection Practices Act and Fair Credit Reporting Act lawsuits. The total number of these lawsuits filed in 2009 was over 8,000, which is more than any other previous year. Most experts predict similar numbers in 2010 because collectors are continuing aggressive collection tactics and more and more consumers are using the law to get legitimate errors removed from their credit reports.
In most years past filing a lawsuit to get something erroneous removed from your credit reports was an expensive and lesser-pursued strategy. But, with lenders increasing their minimum credit score requirements spending the money in order to have credit score-damaging errors corrected or removed actually is a newly smart investment.
So what should I do in 2010 in order to position myself in the best place? You can find yourself almost completely exempt from the credit crunch by doing two things; getting out of credit card debt and increasing your credit scores. By getting yourself out of credit card debt it allows you to escape the abusive treatment by lenders. Remember, things like interest rate and minimum payment increases only matter if you carry a balance. Getting out of and staying out of credit card debt puts you in a very enviable position. This is old advice that has taken on a new level of importance.
A second byproduct of getting out of credit card debt is the significant benefit to your credit scores. “Debt” makes up a whopping 30% of the points in your FICO® scores, which places it a close second behind whether or not you have negative information on your credit reports. And as many people have learned the hard way, the minimum score requirements to not only qualify but also qualify at the best interest rates have become more difficult to satisfy.
This means higher FICO scores equals approvals where in the past a higher FICO score meant an approval with the best rates.
Many of us received a letter (or letters) from our credit card issuers with similar messages;
· Your credit line has been lowered to reflect your spending
· Your account has been closed because we believe your card is being used in a manner inconsistent with your Cardmember agreement
· Given the size of your credit line and the way you have historically used your account, we have adjusted your credit line
· We are increasing the Annual Percentage Rates (APR) on your account to 25.49%
· A new service charge of $10 per month will be applied to your account
2009 was surely the year of the credit card issuer’s reign of terror against their cardholders. According to various surveys at least 35% of the population acknowledged experiencing some sort of adverse change to the terms of their credit card account. And, according to two FICO studies the median score for consumer who saw their credit limits involuntarily reduced was 770, which means that credit line decrease really didn’t have anything to do with elevated credit risk.
Of course this abusive behavior lead to the passage of the Credit Card Responsibility, Accountability and Disclosure Act of 2009, or CARD Act for short. This act provides the following rights to cardholders, among others…
· A guaranteed 21 day grace period on payments
· 45 days advance notice of any interest rate increases
· Tough rules around issuing credit cards to consumers who are under 21 years old
· Restrictions on when card issuers can increase your interest rates, and a method whereby consumers can earn back their lower rates by making their payments on time
· Clearer disclosure of account terms before an account is opened
· Restrictions on over limit fees. If a consumer has not “opted in” to allow a credit card issuer to approve a transaction that puts you in an over limit positions, they have to either decline the transaction or not charge you the over limit fee
· No additional fees because of the method of payment
· No more double cycle billing, the method of using the prior month’s balance to determine interest charges for the current month
· Application of payments above the minimum now have to be applied to the balance with the highest interest rate
· Gift cards won’t be able to expire for at least five years. And inactivity fees on gift cards will be banned
Unfortunately 2009 continued to produce decreased property values, which means no equity or worse, negative equity. And while consumers are comfortable with negative equity in their auto loans, they are not used to negative equity in their homes. Your home is your largest investment and it has historically increased in value. This leads to wealth building, a sizable tax deduction, and access to capital in order to send children to college, pay down credit card debt or fund home improvements.
The loss of home equity also lead to a significant number of home equity lines (HELOCs) being cancelled by lenders. A HELOC had always been a secured loan, secured by the perceived value in your home. But, with the home values dropping many HELOCS became huge unsecured lines of credit and many lenders simply weren’t comfortable with the lines any longer. The problem with the cancellations is that most consumers were never notified that their equity lines had been cancelled and didn’t find out until they wrote a check from the line, a large check in many cases, which bounced.
2009 was also a banner year for attorneys involved in credit related litigation, specifically Fair Debt Collection Practices Act and Fair Credit Reporting Act lawsuits. The total number of these lawsuits filed in 2009 was over 8,000, which is more than any other previous year. Most experts predict similar numbers in 2010 because collectors are continuing aggressive collection tactics and more and more consumers are using the law to get legitimate errors removed from their credit reports.
In most years past filing a lawsuit to get something erroneous removed from your credit reports was an expensive and lesser-pursued strategy. But, with lenders increasing their minimum credit score requirements spending the money in order to have credit score-damaging errors corrected or removed actually is a newly smart investment.
So what should I do in 2010 in order to position myself in the best place? You can find yourself almost completely exempt from the credit crunch by doing two things; getting out of credit card debt and increasing your credit scores. By getting yourself out of credit card debt it allows you to escape the abusive treatment by lenders. Remember, things like interest rate and minimum payment increases only matter if you carry a balance. Getting out of and staying out of credit card debt puts you in a very enviable position. This is old advice that has taken on a new level of importance.
A second byproduct of getting out of credit card debt is the significant benefit to your credit scores. “Debt” makes up a whopping 30% of the points in your FICO® scores, which places it a close second behind whether or not you have negative information on your credit reports. And as many people have learned the hard way, the minimum score requirements to not only qualify but also qualify at the best interest rates have become more difficult to satisfy.
This means higher FICO scores equals approvals where in the past a higher FICO score meant an approval with the best rates.
Friday, December 4, 2009
FICO Fool’s Gold
By Edward Jamison, Esq.
Oh man, those engineers at FICO must be having themselves one rip roaring laugh right about now. They pulled the fast one of the year on November 29th when they supposedly disclosed FICO score point values to Liz Weston from MSN. Ms. Weston, who is one of smarter consumer credit journalists, took the bait hook line and sinker and published this article soon thereafter.
http://articles.moneycentral.msn.com/Banking/YourCreditRating/weston-5-ways-to-kill-your-credit-scores.aspx?page=1
Essentially what happened was FICO simulated the impact of a variety of credit behaviors on FICO scores of both 680 and 780. The score “damage” was summarized into the below chart. Weston’s article was titled “5 Ways to Kill Your Credit Score”, which to me means that the article was simply meant to illustrate that doing one of the following actions can hurt you…and that your should avoid them at all costs. The problem is the info is already being misinterpreted and abused.
Here’s where the fun really begins, what FICO did not disclose and what Ms. Weston might now know is that four of the five actions listed above will cause your credit file to be scored in a new scorecard. What this means…well, what this means is complicated. FICO scores measure your credit file’s potential risk by scoring it using a unique algorithm specifically designed for your file type, called a scorecard. That means if you have a bankruptcy then you’re scored in a bankruptcy scorecard. If your credit file only has one or two accounts then it’s scored in what’s referred to as a thin file scorecard, and so forth and so on.
Point being, all of our credit files are not scored the same way and not using the same FICO formula. Four of the five actions above are negative. And, when a clean file suddenly is hit with something negative it will go from essentially a “clean credit file” scorecard to a “derogatory file” scorecard. The result is a completely different measurement for EVERYTHING on your file. So adding a foreclosure or a settlement or a 30-day late payment or a bankruptcy to your credit file doesn’t “cost” it the points you see above. It causes everything on your file to have a new value so the score change can’t be attributed just to the negative item. The score change has to be attributed to the change in scorecards.
Next, not all 680s and 780s are created equally. Meaning, your 680 might have been caused by a completely different set of credit circumstances as my 680. Same goes for the 780. Case in point, John Ulzheimer, a credit expert who has forgotten more about credit scores than most people know, ran similar simulations on his own personal credit reports using the myFICO website tools. It just so happens that Mr. Ulzheimer’s FICO score for the simulations was also 780. This is perfect because I’m about to illustrate just how different FICO’s hypothetical 780 is from a real credit report with the same score of 780.
The score damage on the original 780 in FICO’s simulation of filing a bankruptcy was a negative hit of between 220 and 240 points. On Ulzheimer’s real credit file with a real FICO score of 780 the hit was between 195 and 255 points. Missing a payment on an account that was current, also known as the dreaded “30-day” late, caused FICO’s FICO score to drop between 90 and 110 points. On Ulzheimer’s 780 FICO score the same 30-day late payment caused his score to drop 40 to 75 points.
As you can see the point differences for the exact same action on the exact same FICO score (780) was anything but exactly the same. Ulzheimer even trumped Weston by re-interviewing FICO’s Public Affairs Director, Craig Watts. He was able to confirm from Watts that the examples in the FICO chart were “hypothetical” and “could vary significantly” from consumer to consumer. You can Ulzheimer’s his full article here.
http://www.credit.com/news/experts/2009-11-29/real-fico-score-damage-point-amounts-clarified.html
As interesting as the MSN article is and as hard as it is for me to say this, I believe writing this article was quasi-irresponsible. Not so much because of the content was wrong, because it wasn’t. As I said, Weston is right at the top of list of credit journalists who cover the industry. The problem as I see it is you could have disclaimed the charts and results with “this is just a hypothetical example” a dozen times and people are still going to focus on the point differences and believe them and think that they now know how many points things are worth, which will be an incorrect assumption in almost every case. This will lead to more consumer confusion on a topic that’s already confusing as hell.
My point is already being proven. Within two days of the publishing of Ms. Weston’s article two separate writers picked up and misrepresented the data. Instead of interpreting the information as a general approximation of what COULD happen to your score if you made various mistakes, the data is purposely being positioned as a new breakthrough into FICO’s black box. The titles of those two article are “FICO Reveals How Common Credit Mistakes Affect Scores” and “FICO Reveals the Impact of Their Credit Scores on Consumers”, the second title making absolutely no sense and neither being truly accurate.
Look, I recognize that these are simple “search engine content” pirates and they’re just jacking and using someone else’s content to benefit their own affiliate programs. Point being, they’re never going to get it right and they don’t care because they just want the keywords for their websites to attract search engine traffic for certain key credit terms. The problem is this stuff gets picked up and spread all over the world wide web and inevitably finds it’s way into credit related chat rooms, blogs, forums and even legitimate media and thus takes on an air of legitimacy.
It would have been great if Weston had thought about this before she published her story.
Oh man, those engineers at FICO must be having themselves one rip roaring laugh right about now. They pulled the fast one of the year on November 29th when they supposedly disclosed FICO score point values to Liz Weston from MSN. Ms. Weston, who is one of smarter consumer credit journalists, took the bait hook line and sinker and published this article soon thereafter.
http://articles.moneycentral.msn.com/Banking/YourCreditRating/weston-5-ways-to-kill-your-credit-scores.aspx?page=1
Essentially what happened was FICO simulated the impact of a variety of credit behaviors on FICO scores of both 680 and 780. The score “damage” was summarized into the below chart. Weston’s article was titled “5 Ways to Kill Your Credit Score”, which to me means that the article was simply meant to illustrate that doing one of the following actions can hurt you…and that your should avoid them at all costs. The problem is the info is already being misinterpreted and abused.
Here’s where the fun really begins, what FICO did not disclose and what Ms. Weston might now know is that four of the five actions listed above will cause your credit file to be scored in a new scorecard. What this means…well, what this means is complicated. FICO scores measure your credit file’s potential risk by scoring it using a unique algorithm specifically designed for your file type, called a scorecard. That means if you have a bankruptcy then you’re scored in a bankruptcy scorecard. If your credit file only has one or two accounts then it’s scored in what’s referred to as a thin file scorecard, and so forth and so on.
Point being, all of our credit files are not scored the same way and not using the same FICO formula. Four of the five actions above are negative. And, when a clean file suddenly is hit with something negative it will go from essentially a “clean credit file” scorecard to a “derogatory file” scorecard. The result is a completely different measurement for EVERYTHING on your file. So adding a foreclosure or a settlement or a 30-day late payment or a bankruptcy to your credit file doesn’t “cost” it the points you see above. It causes everything on your file to have a new value so the score change can’t be attributed just to the negative item. The score change has to be attributed to the change in scorecards.
Next, not all 680s and 780s are created equally. Meaning, your 680 might have been caused by a completely different set of credit circumstances as my 680. Same goes for the 780. Case in point, John Ulzheimer, a credit expert who has forgotten more about credit scores than most people know, ran similar simulations on his own personal credit reports using the myFICO website tools. It just so happens that Mr. Ulzheimer’s FICO score for the simulations was also 780. This is perfect because I’m about to illustrate just how different FICO’s hypothetical 780 is from a real credit report with the same score of 780.
The score damage on the original 780 in FICO’s simulation of filing a bankruptcy was a negative hit of between 220 and 240 points. On Ulzheimer’s real credit file with a real FICO score of 780 the hit was between 195 and 255 points. Missing a payment on an account that was current, also known as the dreaded “30-day” late, caused FICO’s FICO score to drop between 90 and 110 points. On Ulzheimer’s 780 FICO score the same 30-day late payment caused his score to drop 40 to 75 points.
As you can see the point differences for the exact same action on the exact same FICO score (780) was anything but exactly the same. Ulzheimer even trumped Weston by re-interviewing FICO’s Public Affairs Director, Craig Watts. He was able to confirm from Watts that the examples in the FICO chart were “hypothetical” and “could vary significantly” from consumer to consumer. You can Ulzheimer’s his full article here.
http://www.credit.com/news/experts/2009-11-29/real-fico-score-damage-point-amounts-clarified.html
As interesting as the MSN article is and as hard as it is for me to say this, I believe writing this article was quasi-irresponsible. Not so much because of the content was wrong, because it wasn’t. As I said, Weston is right at the top of list of credit journalists who cover the industry. The problem as I see it is you could have disclaimed the charts and results with “this is just a hypothetical example” a dozen times and people are still going to focus on the point differences and believe them and think that they now know how many points things are worth, which will be an incorrect assumption in almost every case. This will lead to more consumer confusion on a topic that’s already confusing as hell.
My point is already being proven. Within two days of the publishing of Ms. Weston’s article two separate writers picked up and misrepresented the data. Instead of interpreting the information as a general approximation of what COULD happen to your score if you made various mistakes, the data is purposely being positioned as a new breakthrough into FICO’s black box. The titles of those two article are “FICO Reveals How Common Credit Mistakes Affect Scores” and “FICO Reveals the Impact of Their Credit Scores on Consumers”, the second title making absolutely no sense and neither being truly accurate.
Look, I recognize that these are simple “search engine content” pirates and they’re just jacking and using someone else’s content to benefit their own affiliate programs. Point being, they’re never going to get it right and they don’t care because they just want the keywords for their websites to attract search engine traffic for certain key credit terms. The problem is this stuff gets picked up and spread all over the world wide web and inevitably finds it’s way into credit related chat rooms, blogs, forums and even legitimate media and thus takes on an air of legitimacy.
It would have been great if Weston had thought about this before she published her story.
Friday, November 13, 2009
Solid Strategies to Avoid Credit Card Smackdown
By Edward Jamison, Esq.
We’re officially four months away from the Credit Card Holder’s Bill of Rights going into effect. And, if certain Democrats have their way, we’re only thirty days away. But, for the sake of argument let’s assume that the CARD Act provisions will wait until February 2010 to become enforceable law.
During these last few days of the credit card world’s version of the Wild Wild West we should continue to see credit card issuers behaving badly, very badly in fact. The mega-credit card issuers have a shrinking window of opportunity to finish remolding their cardholder base to look more like what they will finally deem as being to their liking. This means consumers will continue to suffer the at the hands of their credit card companies, that is of course unless they employ one or more of the following strategies.
1. Don’t Not Use Your Card – Ok, the poor grammar was intentional and corny but I think I’ve made my point. Credit card issuers are in busy to make money and make a profit. They can’t do either unless you are using your credit card. And, the best news is that you do not have to carry a balance from one month to the next in order to drop a few dimes in your credit card issuers pockets. Each time you use your credit card the merchant (aka the place you used the card) has to pay the bank a fee. This fee is called interchange. It technically comes out of your pocket because many retailers will build the assumed fee into the price of the merchandise but it sure doesn’t feel that way when we buy stuff with our credit cards. So, knock the dust off your cards and use them for modest purchases. Don’t revolve a balance and don’t get into a position where your balances spiral out of control and you’ll be fine.
2. Shut Up! – In the past a viable strategy to get fees waived and interest rates lowered was to call your credit card issuer and complain or otherwise plead your case. That’s still a decent strategy but beware. Your credit card issuer might turn the tables and start asking YOU questions in order to determine whether or not they still want to do business with you. If you call them and THEY start asking questions about your job status and salary then end the convo and hang up or you might just end up with a closed credit card.
3. Open Another Card, NOW – One of the worst strategies I see people employing today is the 1-card strategy. This is a consumer who has swallowed the Dave Ramsey gospel hook, line and sinker. The problem is that it’s unrealistic and appealing only to the lowest common credit denominator. You should have MORE cards, not fewer cards. Clearly this is a credit score play as well since having more available and unused credit limits are always good for your credit scores. So, if you have one or two credit cards right now, think about opening at least one more. This gives you options in case one of your credit card issuers starts behaving badly towards you. Nothing is more empowering than saying “I’ll take my business elsewhere” and then actually doing it.
4. Don’t Hide Behind Great FICO Scores – FICO published a study earlier this year and the findings showed that the median FICO score for a consumer who has seem his or her credit limit reduced was 770. A 770 FICO score is fantastic in any lender’s book and especially in this credit environment where lenders are gravitating to stronger borrowers. What this means is that just because you have great FICOs it doesn’t fully shield you from adverse treatment from lenders.
5. Go Small and Go Local – I was interviewing John Ulzheimer, founder of http://www.creditexpertwitness.com/ and a nationally recognized credit expert and he made an interesting point. He said that we, as consumers and watchdogs, tend to focus on the largest 5-10 banks and tend to forget about the thousands of lenders who are NOT treating their customers poorly. Credit unions are a great example of these lenders. If you are sick of how you’re being treated by your Manhattan bank then perhaps you need a local credit union or local bank on your side.
6. Don’t Exit The System – The blogs are on fire with angry consumers who are claiming to have sworn off credit for the foreseeable future because of how they are being treated by their lenders. “From now on if I can’t pay cash for it I won’t buy it.” Eh, that plays well on the big screen but it’s not realistic. Carrying around cash to pay for things is a bad idea. And good luck using debit cards for things like business travel and European vacations. Stay in the system, please.
7. If All Else Fails, Litigate – If you’re finding yourself saddled with a garbage credit report because of errors and you can’t the credit bureaus or lenders to correct your files then think about filing a lawsuit. You certainly wouldn’t be alone. There will be over 8,500 credit related lawsuits filed this year. Collections agencies are the targets in most of them but certainly the credit bureaus and lenders are in the cross hairs a fair amount too. Just be sure to hire a lawyer who knows what he’s doing.
So there you have it, seven solid strategies to hopefully minimize your chances of being treated poorly by your creditors. And while there are certainly no guarantees that you’ll exit this credit environment without a few scars, you can certainly make yourself as immune as possible by doing a few easy and inexpensive things. Good luck!!
We’re officially four months away from the Credit Card Holder’s Bill of Rights going into effect. And, if certain Democrats have their way, we’re only thirty days away. But, for the sake of argument let’s assume that the CARD Act provisions will wait until February 2010 to become enforceable law.
During these last few days of the credit card world’s version of the Wild Wild West we should continue to see credit card issuers behaving badly, very badly in fact. The mega-credit card issuers have a shrinking window of opportunity to finish remolding their cardholder base to look more like what they will finally deem as being to their liking. This means consumers will continue to suffer the at the hands of their credit card companies, that is of course unless they employ one or more of the following strategies.
1. Don’t Not Use Your Card – Ok, the poor grammar was intentional and corny but I think I’ve made my point. Credit card issuers are in busy to make money and make a profit. They can’t do either unless you are using your credit card. And, the best news is that you do not have to carry a balance from one month to the next in order to drop a few dimes in your credit card issuers pockets. Each time you use your credit card the merchant (aka the place you used the card) has to pay the bank a fee. This fee is called interchange. It technically comes out of your pocket because many retailers will build the assumed fee into the price of the merchandise but it sure doesn’t feel that way when we buy stuff with our credit cards. So, knock the dust off your cards and use them for modest purchases. Don’t revolve a balance and don’t get into a position where your balances spiral out of control and you’ll be fine.
2. Shut Up! – In the past a viable strategy to get fees waived and interest rates lowered was to call your credit card issuer and complain or otherwise plead your case. That’s still a decent strategy but beware. Your credit card issuer might turn the tables and start asking YOU questions in order to determine whether or not they still want to do business with you. If you call them and THEY start asking questions about your job status and salary then end the convo and hang up or you might just end up with a closed credit card.
3. Open Another Card, NOW – One of the worst strategies I see people employing today is the 1-card strategy. This is a consumer who has swallowed the Dave Ramsey gospel hook, line and sinker. The problem is that it’s unrealistic and appealing only to the lowest common credit denominator. You should have MORE cards, not fewer cards. Clearly this is a credit score play as well since having more available and unused credit limits are always good for your credit scores. So, if you have one or two credit cards right now, think about opening at least one more. This gives you options in case one of your credit card issuers starts behaving badly towards you. Nothing is more empowering than saying “I’ll take my business elsewhere” and then actually doing it.
4. Don’t Hide Behind Great FICO Scores – FICO published a study earlier this year and the findings showed that the median FICO score for a consumer who has seem his or her credit limit reduced was 770. A 770 FICO score is fantastic in any lender’s book and especially in this credit environment where lenders are gravitating to stronger borrowers. What this means is that just because you have great FICOs it doesn’t fully shield you from adverse treatment from lenders.
5. Go Small and Go Local – I was interviewing John Ulzheimer, founder of http://www.creditexpertwitness.com/ and a nationally recognized credit expert and he made an interesting point. He said that we, as consumers and watchdogs, tend to focus on the largest 5-10 banks and tend to forget about the thousands of lenders who are NOT treating their customers poorly. Credit unions are a great example of these lenders. If you are sick of how you’re being treated by your Manhattan bank then perhaps you need a local credit union or local bank on your side.
6. Don’t Exit The System – The blogs are on fire with angry consumers who are claiming to have sworn off credit for the foreseeable future because of how they are being treated by their lenders. “From now on if I can’t pay cash for it I won’t buy it.” Eh, that plays well on the big screen but it’s not realistic. Carrying around cash to pay for things is a bad idea. And good luck using debit cards for things like business travel and European vacations. Stay in the system, please.
7. If All Else Fails, Litigate – If you’re finding yourself saddled with a garbage credit report because of errors and you can’t the credit bureaus or lenders to correct your files then think about filing a lawsuit. You certainly wouldn’t be alone. There will be over 8,500 credit related lawsuits filed this year. Collections agencies are the targets in most of them but certainly the credit bureaus and lenders are in the cross hairs a fair amount too. Just be sure to hire a lawyer who knows what he’s doing.
So there you have it, seven solid strategies to hopefully minimize your chances of being treated poorly by your creditors. And while there are certainly no guarantees that you’ll exit this credit environment without a few scars, you can certainly make yourself as immune as possible by doing a few easy and inexpensive things. Good luck!!
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