9/13/2011 11:24 AM ET|
New credit score could help millions
FICO's new scoring model may make it easier for some to buy a house or get a credit card. But major lenders have been slow to switch, and the entire mortgage industry has yet to sign on.
The plea for credit score help was direct, almost desperate. A woman and her husband had placed a "fairly large" good-faith deposit on a home. But then her credit score fell from 626 to 619, just one point shy of the minimum required by the Department of Veterans Affairs to qualify for a VA mortgage.
She already had called to remove two old collections reports from her credit file, but that had failed to give her the boost she needed. Now the couple were in a bind. If they didn't boost her credit score in the coming week, they would lose not just the chance to buy the house but their deposit money as well.
"HELP PLEASE!" the woman, under the user name "Butterflieson," posted on a Web forum run by Fair Isaac, the company that created the FICO credit-scoring model. "Is it possible to raise score 1 point in a few days?"
A step forward, delayed
Millions of Americans have solidly good credit; millions more are stuck with seriously low scores. But there are also millions of consumers in the middle -- people with scores that straddle traditional dividing lines between good and bad. A rise or fall of just a few points could save or cost them thousands of dollars in extra interest payments.
It could even change their ability to buy a house or get a credit card.
"If a consumer is applying for a mortgage and they tend to have higher utilization rates on their credit cards, it could (raise their credit scores and) make a difference" in how much they pay for interest, says Tom Quinn, Credit.com's credit-scoring expert and formerly the vice president of scoring at FICO.
Especially for people caught in the middle, a recent update of the FICO credit-scoring model, called FICO 8, could mean big changes. Depending on the type of credit problems consumers have in their past, some people may receive slightly higher credit scores, which could make it easier to buy a house or get a credit card. For other consumers, the changes will hurt their scores, making it somewhat harder to get credit.
"For individual consumers, it depends," Quinn says. "For some consumers, their FICO 8 score will be higher than their previous score, some consumers will be lower, and others won't change at all."
The Basics I: What is Fair Isaac?
If you don't understand what FICO is and how it works, don't feel bad. The credit-scoring system almost seems designed to be inscrutable to the average person. FICO started life in 1956 as Fair, Isaac and Co., founded by engineer Bill Fair and mathematician Earl Isaac to help department stores and gas station chains decide when to extend in-house credit cards to customers.
Even as the basic scoring model has evolved, the basics have remained essentially the same. A credit score is a number assigned to a consumer that attempts to summarize whether that person is worthy of receiving credit. Mortgage lenders, credit card issuers, car dealers and other businesses that extend credit rely on credit scores to decide whether to extend credit -- and, if so, how much to charge in the form of interest.
Though many companies offer scores, the FICO score has emerged as the benchmark. And FICO itself offers many different types of scores that are customized for different types of loans, including separate scoring models for mortgages, auto loans and even insurance. But they all use similar types of information, including consumers' histories of paying their debts on time, how much of their available credit they use, how many different types of credit they use and whether they have a history of unpaid debts.
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If i dont pay then I have no insurance. Just another way for insurance companies to screw us over and charge us more !!
I think unless someone is considering extending an offer of credit, they have no business knowing your credit score or, for that matter, accessing your credit report. If I'm paying rent up front, you are not extending credit. I am paying you in advance for the right to rent your property. All a credit report and score proves is how I've paid my bills in the past. It guarantees you absolutely nothing.
Say I've always paid my bills on time, until I lose my job. Suddenly I can't pay my bills any more, including your rent. Kinda makes that stellar credit score a moot point, doesn't it? Or say I had problems paying my bills in the past, but now I have a good job and I've caught everything up. Why do I have to wait the required number of years for my credit report to reflect that?
We are required by law in most states to purchase auto insurance. But the price we pay should not be determined by a credit score. People only have good credit until negative information ends up on their report. These events are not a predictor of whether or not you will be a responsible employee or rental tenant. So why should they affect whether or not you can get a job or rent an apartment?
I have no idea what my score is and I don't care. I don't borrow money. If I can't afford it, I do without. They can make any rules they want. If I don't like it, I don't have to play the game.
Credit scores are a joke! You have people that go to work everyday to take care of themselves or their families only to get hurt or laid off from a job and lose everything. Everyone in this country is not born rich some of us have to work for everything. Try being laid off 3 times in less than 3 years. You have to decide whether to feed your family or pay a bill. The choice to make is obvious to me. I have read some of these responses and they are ridiculous. People are so judgmental until they are faced with the same hardships then you want someone to be sympathetic to you. Everyone with low credit scores are not bad people they deserve to be treated with respect like anyone else.
I don't care what kind of credit score the banks use, but what i can't understand is why banks don't do their own checking on some one.
The way I see this whole mess is what the devil does a credit score have to do with insurances of any kind, or a rental deal, or even my ability to do my job?
I guess insurance companies figure I'll wreck car to pay may insurance, or better yet, I'll total it to get out of paying for it? That's a stupid idea simply because I might get hurt or killed doing it. Ok, so homeowners insurance might believe I'd burn my house down to collect the insurance? Well the last time I heard arson is a crime and you can't collect if you commit a crime.
Let's look a rentals, so I'd not pay my rent and risk eviction and being homeless to pay my credit cards, no I wouldn't pay the credit cards first as they are unsecured debt.
Ok then, now for employment. I get the idea an employer might think I'd steal from then to pay my bills, no that is illegal too. Why would I risk the income I've got and risk going to jail too I think having a lot of debts would say to an employer I'd work overtime.
I wouldn't do anything illegal, so why use a credit on these three things. I can't see really any real good reasons to use a credit score at all except to charge more. Maybe the crime is the being committed against me by using this credit score. Maybe a credit score should be illegal to use for insurance, rentals, and employment.
F the American dream
it's been flawed for years, one of the flaws being it's almost impossible to get above a certain level (typically 720-750) without ever having a mortgage. since some people can never really afford a house until they're practically middle-aged even with a good income or financial history (particularly somewhere like LA or NYC), they're at an automatic disadvantage. also makes no sense that many people you pay your bills to never report a payment history, even if you are always on time. this is particularly a problem for things like your home telephone or utility, where if you never pay them, they will report it to the credit agencies and trash your scores, even though they will never report the positive payments. that should be illegal on the face of it. anyone that regularly reports a NEGATIVE credit history should also be required to report a POSITIVE payment history.
further, all businesses should have to fully disclose when they will run your credit (hard pull) and the potential impact to your credit score. I've opened a checking account, given them my SS# (required by law due to Patriot Act and so they can easily identify you without a bunch of red tape), and had them run my credit without telling me, negatively lowering my credit score at least 10 points and impacting my future ability to get approved for credit due to another inquiry. just for switching banks!! which is not credit on the face of it, unless the bank chooses to pay debits while you have insufficient funds (NSF), that they will charge you $30-40 for. all of this, even though I've had bank accounts since I was 10 and never had any history of any bad accounts they did this.
also consumer credit scoring doesn't accurately reflect DTI, since they have no idea what your income is. it only reflects what your debt is, in relation to your total credit "limits". if my income goes from 50,000 to 70,000, obviously I'll have a much better opportunity to be repaying my debts... this happened to me once in the past and yet my credit score stayed the same. not only can it keep your score down, but it can thereby impact your ability to get approved for a loan or credit card after getting a new job or raise. they will say, but you're already using 80% of your credit, and this may be true but that was based on a credit card limit you got approved for long ago, when your income was possibly much lower.
if you normally carry a balance around $500 on your credit card, and then your credit card company cuts your credit limit in half because of "economic factors" (i.e. Great Recession) this will dump your score several points. again not what people bargained for when they signed up or developed their spending and payment history. this happened to most people who had a credit card after the Congress-induced housing crisis.
I do have to say a 620 is not very good, so to the lady in the article too bad so sad. should've done better before trying to buy a house... like America needs more deadbeats buying houses? that's what got us into this mess in the first place. fix your credit through a history of good repayments and lowering your DTI
own home. husband gets hurt @ work responding to staff member being attacked by inmate. Workman's Comp takes 3 months to give us a paycheck. Pay mortgage or feed family? Hmmm.
Lost house & credit is now ruined.
And this is our fault how? We called workman's comp constantly only to be told "do not call my office again I will call you". I heard that arrogant ****** tell my husband that on speakerphone.
With late fees, penalties & mortgage the bank wanted approx $10,000 when it was all said & done to keep our house.
We have no car payment, no credit cards. But thanks to the short-sale on our house our credit scores have plummeted.
We also asked the bank if they would help us in anyway. NO! We paid $250,000 short sale: $175,000. Now. Why couldn't they work w/us & let us keep our house for that?! BECAUSE THEY PUNISH YOU FOR NOT PAYING!
DO NOT GET HURT AT WORK! WORKMAN'S COMP STICKS IT TO YOU TOO! SAD SAD SAD.
CONSIDER THE FOLLOWING,
I HAVE BOTH A CHECKING AND SAVINGS ACCOUNT AND LAST MONTH I RECEIVED ABOUT 40 CENTS IN INTEREST ON APPROX. $6,000 BECAUSE THE BANK PAYS ME WAY LESS THAN 1% IN INTEREST ON THE MONEY I HAVE ON DEPOSIT.
YET, IF I WISH TO USE THE BANKS MONEY BY GETTING A CREDIT CARD FROM THEM THEY WANT 12%-18% INTEREST ON PURCHASES AND MORE ON CASH ADVANCES.
THE DISCREPANCY BETWEEN WHAT THEY PAY THEIR CUSTOMERS IN INTEREST VERSUS WHAT THEY CHARGE THEIR CUSTOMERS IN INTEREST IS ABSOLUTELY CRIMINAL, YET THE NATIONS POLITICIANS LET THEM GET AWAY WITH IT, WHICH IS ALSO CRIMINAL.
I think credit scores should be eliminated all together! with the way this economy is going, only the rich will have any leverage with credit.
credit scores is just another way of widening the gap between the rich and the poor.
Are credit scores Discriminatory? I purchased my score from the big three, averaged 750 (FICO). I applied for a low interest loan to refinance my house the next week. Loan officer calls back within a few minutes. Mr Sparks, we cannot approve your loan because your credit score average is 555. How can this be, I just purchased my score and it was 750. I immediately called the credit reporting agency for an explanation. They simply used a different scoring model, which I had never heard of until then.Their explanation of the reasoning made no common sense. After spending a few restless days and nights I came to a conclusion of my own.(Discriminate) If they do not want to loan money to certain people, flag their name at the credit reporting agency to use lowest model and problem solved, no explanation.
How to slow down on the high rate of home foreclosure in the US. Since banks were bailed out at the start of this poor economy, and with14 million Americans out of work, due to lack of jobs. Help the poor Americans that are still in their homes, by having the banks that are holding these notes modify the loans to the depreciated value of the homes until the economy, and jobs get stabilized, the banks can afford to do this for America and its people. Banks received bailout help, so why shouldn’t American home owners . Let’s get America back on track and make America a stronger NATION AND ITS PEOPLE... THIS is not the total solution but it’s a damn good start..to slow down foreclosure.
My score is very good, but on my credit report negative factors were: 1. no mortgage --but why do I need a mortgage? The house has been paid for for 30 years.
2. No major credit cards--what are Visa and Mastercard anyway?.
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