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Credit Score Consistency Critical to Effective Risk Measurement

Credit Professor — Wed, 07 Dec 2011 10:16:35 +0000

VantageScore Solutions, LLC, the company behind the VantageScore(R) credit score model, recently received a patent for the methodology behind its “Score Consistency Index,” which is a process that affords lenders the ability to measure the consistency of multiple generic credit score models across the three credit reporting companies (CRCs): Equifax, Experian and TransUnion.

Credit score models that provide widely inconsistent scores can increase the risk exposure for a lender. That risk exposure results in less attractive products and pricing, because consumers who receive such scores are potentially not being matched with the right types of credit and at the most appropriate terms. Inconsistent scores occur largely because other credit scoring models use a different algorithm for each CRC, and because of variations in the data reported by creditors and the timing of that reporting.

“It benefits lenders and consumers to have credit scores that are as consistent as possible,” said Barrett Burns, president and CEO of VantageScore Solutions. “We developed this measurement methodology so that lenders can understand whether inconsistent scoring is obscuring their true risk profile. It is readily available in the research section of our website for all to download and use.”

The VantageScore credit scoring model is used by numerous lenders, making billions of decisions annually, including four of the top five financial institutions, the top five credit card issuers, two of the top five auto lenders, and one of the country’s largest mortgage lenders. Recent media reports disclosed that banking giant Chase adopted VantageScore in January of 2011. Secondary market participants including Fitch and S&P also rate securitized loan package issues using the VantageScore model.

Source: VantageScore Solutions, LLC

An Excellent Credit Score Is Important For A Number Of Reasons

Credit Professor — Mon, 26 Sep 2011 16:08:26 +0000

Most people know how great an excellent credit score can be. (Not to mention how good and proud you feel)
Unfortunately some people don’t realize that having poor credit can make it difficult, if not impossible, for them to secure a major loan such as an auto loan or home mortgage, and many don’t realize poor credit can cause problems in other important areas as well.

Auto and home owner’s insurance
Most Insurance companies these days are using credit scores to qualify and price their customer’s policies. In many cases and under certain circumstances, Insurance companies have the right to increase their premiums based on the credit standing of those they insure.

If you don’t have an excellent credit score, you could pay more. These companies will quote studies and statistics that back up their claims. Be aware that a low credit score may mean higher premiums on both auto and home owner’s insurance.

Employment
A lot of employers these days are using credit checks to screen their potential employees. With so many people looking for a job and the employer having plenty of applicants, employers can be more selective than before.

Many job seekers, particularly when applying for a job that requires them to deal with substantial amounts of money, find that their prospective employer will not hire them with mediocre credit scores. Although this seems a bit inappropriate and unnecessary to some, the logic behind the credit check is sound. Some companies simply respond, “If a job candidate can’t handle their own finances in a responsible way, how will they handle ours?”

More and more companies are using credit reports as part of their screening process and that means it will be harder and harder for those with low or marginal credit scores to find employment. If you are looking for a new job or there is a chance you will be in the near future, take the time to check your credit and do all you can to correct any errors. Then take the necessary steps to improve your score. Doing so, can remove the uncertainty about your credit, take a great deal of stress out of your job search and give you a much better chance of finding employment.

Rental agreements, loans and leases
It’s become common place that a credit check is required for renting a home or apartment or securing a loan or lease on a vehicle. Even if you have a perfect record of paying your rent on time at a previous apartment, you may still have to agree to a credit check. Landlords and rental management companies measure your credit risk in much the same way as banks and other lenders. A shaky credit report may disqualify you or cost you more. A credit check is almost a certainty when entering into a loan or lease for a vehicle.

Take preventive measures
It’s a good idea to carefully check your credit report before you apply for a job, take out an insurance policy or rent your next apartment.
And do so as early as possible so you can correct any errors on your report and get the excellent credit score that you deserve!
Find out how to clean up your credit report the easy way:

This free video presentation reveals how you can save over $90,000 dollars just by raising your credit score only 80 points!

Watch the free video presentation while it is still available

Credit Default Swaps explained clearly in five minutes

Credit Professor — Tue, 06 Sep 2011 14:13:05 +0000

BBC Newsnight feature by Alex Ritson on Credit Default Swaps – until recently a little-known financial product that Lehmans Brothers, AIG and the Icelandic banks were up to their necks in. Could this be the black hole at the centre of the financial crisis?

The Crisis of Credit

Credit Professor — Tue, 06 Sep 2011 13:57:34 +0000

An excellent video explaining the crisis of credit. This is something that Businesses Coaches, Business Consultants and Financial Planners will find useful to educate their clients.

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Checking your Credit Reports

Credit Professor — Sun, 20 Feb 2011 00:08:42 +0000

Before applying for a bad credit auto loan you might first want to check each of your credit reports.

How we know

Before applying for a bad credit car loan it’s always a good idea to check each of your credit reports and know your credit scores. We know because at Auto Credit Express we’ve been working with poor credit retail car buyers for more than twenty years.

Another example is our web site that contains a bad credit auto loan application – something we realized was needed after seeing the confusion and frustration which customers with bad credit often experience at car dealers that fail to offer second chance auto loans.

And while bad credit buyers can always visit a local tote the note dealer, this won’t solve their car credit issues since these dealers usually don’t report loans or loan payments to the credit bureaus and their loans often end up in repossession.

Speaking of loan payments and credit bureaus, let’s discuss what a credit report actually is.

A credit report

A credit report is simply a record of your borrowing and payment history. Banks, credit card companies and many other places that extend credit usually report your payments to one, two or even all three of the major credit reporting agencies in the United States – Equifax, TransUnion and Experian. This is a type of credit known as “applied for” credit. This means that you requested to borrow money from the reporting lender.

Your credit report may also contain certain “not applied for” credit entries. These entries include items such as bad checks, medical bills and any tax liens or civil judgments – that is, bills that you owe that are not a result of a credit application.

What’s the difference? If you pay all your bills on time, you won’t have these “not applied for” entries listed on any of your credit reports.

View your credit report

Viewing each of your credit reports will also let you know if there is anything they contain that is incorrect. If there is, many of these mistakes can lower your credit score. If you plan on buying a car, knowing what’s on your credit report as well as your FICO score can tell you whether or not you might qualify for a regular car loan or if you need to find a dealer that specializes in car loans with bad credit.

The dividing line for either type of loan is not always black and white but typically, if your FICO score falls below 640, you will need to apply for a bad credit auto loan.

Our job

Once you’ve checked your credit report and credit scores and you’ve determined that you will probably need a bad credit auto loan, the next step is to find a dealer that offers them, since not all do. The best place to do that? We’re glad you asked.

At Auto Credit Express, we specialize in placing customers with bad credit with dealers that can help them. These affiliate dealers are knowledgeable and work with a broad spectrum of lenders to ensure the best chance at getting approved for a car loan.

So if you are serious about getting your credit back on track, you can begin the process right now by filling out our online bad credit car loan application now.

Do you know your score?

Credit Professor — Sat, 19 Feb 2011 19:59:50 +0000

Nathan Froehlich had never checked his credit report before. He didn’t know what his credit score was. On Monday, the North Dakota State University senior went over his report and score with Joshua Hahn, a personal banker at Starion Financial. Froehlich was pleasantly surprised. “It’s higher than I would have thought it would be,” he said.

Lenders and financial counselors say it’s important people take a look at their credit score well before they seek any big loans, such as a mortgage. That three-digit number can have a big impact on their wallets. Lenders, landlords and hiring firms often check credit scores. Scores can influence approval and interest rates.

“A few points difference in your credit score can have thousands of dollars’ impact over 30 years of a mortgage,” said Mike Wickham, retail branch manager of Starion Financial in southwest Fargo.

Through the end of February, Starion branches are offering free credit reviews, including a free credit report and score, to anyone who makes an appointment. Wickham said the goal is to explain to people why their scores are high or low.

“We feel it’s important we educate people ahead of time on how their score can impact them,” Wickham said.

Where is my score?

There are many different types of credit scores, but the ones most often considered by lenders are FICO scores, developed by the Fair Isaac Corp.

FICO scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and Transunion. Each may report a different score, though won’t vary too much, Wickham said.

Anyone can get one free credit report yearly from each of the three credit reporting bureaus at www.annualcreditreport.com, but the credit score isn’t included for free on those reports.

Since 2003, lenders have been required to disclose to applicants scores used to judge them, and two new laws that kick in this year will give more people free access to their scores, according to a Feb. 9 article by MSN Money’s Liz Weston.

What’s in a score?

Credit scores are based on five factors, according to a booklet from Fair Isaac:
* Payment history (35 percent of the score).
* Amounts owed (30 percent of the score).
* Length of credit history (15 percent of the score).
* New credit (10 percent of the score).
* Types of credit in use, such as revolving (credit cards) and installment (mortgage and car loans) accounts (10 percent of the score).

FICO scores range from 300 to 850. The lower a person’s score, the riskier they appear to a lender or other credit granter, said Jesse Jurgenson, a financial counselor at The Village Family Service Center in Fargo, which offers credit reviews for a fee.

“The best way to predict if somebody will pay their bills in the future is how they’ve paid their bills in the past,” he said.

Jurgenson said there are several criticisms of the scoring system. It can be inaccurate, if the credit bureaus have wrong information. It also looks at a seven-year time frame, meaning mistakes from your early 20s can still haunt you at 30. It doesn’t consider personal circumstances, such as a medical crisis.

“The system’s not perfect, but you have to rank people somehow,” Jurgenson said.

Credit scores don’t consider factors like age, race, religion or education.

What’s a good score?

Wickham says around 700 is the dividing line between a good and bad score.
Jurgenson said anything above 680 used to be considered a good score, but as lenders have less money to loan, it’s upped the necessary credit score to low 700s.
Someone with a score under 500 will have trouble getting credit approval, Jurgenson said.
Improving a score takes time, Wickham and Jurgenson said. That’s why applicants should check their scores six to 12 months before seeking a big loan.
By looking at their credit report, applicants can dispute any mistakes and detect possible identity theft.
Credit reports also provide clues on why a score may be low – such as missed payments or overextended credit – and what can be done to raise it.
The most basic advice is to use credit responsibly. Jurgenson often tells college students to use one credit card to buy gasoline and then pay off the card on time each month.
“You need to use credit to build credit,” he said. “In some ways it’s better to have bad credit than no credit.”

Tips for a good FICO score

* Do pay your bills on time? If you have missed payments, get current and stay current.
* Don’t use a high percentage of your available credit.
* Don’t open several credit cards in a short period of time. Apply for and open new credit accounts only as needed.
* Don’t close unused credit cards. Owing the same amount but having fewer open accounts may lower your score.
* Do pay off debt rather than moving it around.

Source: my FICO

Experian using rental history to calculate credit score

Credit Professor — Sat, 19 Feb 2011 19:14:51 +0000

When we meet up with Margaret Mikitka at the home she and her family now rent, she walks us to a pair of french doors that lead out to a small patio and describes, “In my old house, this would have been a fireplace, but now I don’t have one.”

Margaret Mikitka is the face of the American homeowner boondoggled by the housing crisis. She lost her job, and then, she lost all faith in the system. Mikitka describes the disheartening conversation she had with a ban representative.

“I don’t understand. I thought the loan modification was to help lower the payment so we can stay in our home. They said not necessarily. In your case, your benefit was we lowered your interest rate but we increased your monthly payment.” Mikitka continues, “So we had no choice, but to give up our home, and that was the hardest thing I ever had to do!”

Realtor Tony Galarza says, “You’re looking at 18 to 24 months for a homeowner to rebuild his or her credit. So the fact that Experian is opening up this opportunity…is great!”

After Margaret short-sold her family’s home, Galarza helped Margaret find a rental just a few blocks away. She walked us to that home where another family now lives, as she laid out her plan: to pocket the 600 bucks a month they’re now saving, and rebuild their credit so they can own a home again.

News that the Experian Credit Agency is the first to count rental histories when calculating one’s credit score, is the first solid bit of hope she’s had in awhile. Mikitka says, “All I want is help!”

Mortgage broker Chris Brown says this news about Experian means she may finally get some help. Brown says, “To see private industry step up with creative ways to help displaced homeowners get back in their own home, is huge! I can only hope other credit bureaus will follow.”

Mikitka says, “My son was really heartbroken, but I told him, we’re going to get another home; so he doesn’t have to worry.”

Right now, Experian is only referencing rental histories through a credit bureau that collects data from a property management network, so most of the larger rental properties. The hope is eventually, landlords can form a sort of alliance so they too can be counted.

Source: myfoxorlando.com