Real Estate, The Economy, and News: Credit Score

Showing posts with label Credit Score. Show all posts

Friday, September 7, 2018

Outdated or Incorrect Information Could be Holding Back Your Credit Score

Credit is probably the most important aspect of your financial identity. Your credit score can tell lenders how trustworthy of a borrower you are, or how likely it is that they will make their money back. A good credit score can mean the difference between a low interest rate and an exorbitantly high one, and a bad enough score could even get your application for a loan dismissed entirely. There are a few major aspects that determine your score: length of credit history, total amount of debt, and the regularity of debt repayment tend to be the biggest factors. By adjusting those variables, you can raise or lower your score over time. According to an L.A. Times article by David Lazarus, changes to the largest credit agencies' calculation may have recently upped your score, but that doesn't necessarily mean it will stay that way in the near future.

Lazarus writes that some of the larger agencies recently went through their data, and removed a lot of incorrect or outdated information, which presumably improved the scores of those borrowers being held back by such data. But, even though some of the information has been expunged, that doesn't mean they got all of it. In fact, it doesn't even mean they got most of it. The three biggest credit agencies are Experian, TransUnion, and Equifax, and just like all corporations, these companies exist to make money.

Credit agencies serve a necessary purpose. Without them, lenders would have many difficulties figuring out who to lend money to. This would likely lead to them reducing the number of people they loan to, which would, in turn, prevent innovators from getting loans they need to start a business or undertake some other financial activities that could positively stimulate the economy. That being said, although they serve an important utility, the agencies tend to have a lot of outdated information that can be a terrible hassle to get fixed. Various borrowers have reported issues with misspelled business names, which can be troublesome if not disastrous. Many others have had issues with incorrect reports of a trashed apartment or a late credit card payment, which could wreck their credit scores for years to come.

It is very difficult to get such mistakes removed from your credit report. One study showed that over a quarter of customers had at least one potentially harmful error, and another study showed that even after those customers went through 3 years of paperwork, the majority of those errors still remain. Although the odds are not in your favor (at least the way current laws work), there are some steps you can take to fix issues with your credit score.
1) Submit an online complaint to the credit agency.
2) Contact the "furnisher" (the entity that provided the incorrect information).
3) If all else fails, hire a lawyer who specializes in the Fair Credit Reporting Act.

All of those options take time to sort out, but with enough patience, you should be able to eventually settle the issues associated with your account. Unfortunately, that could mean that you get stuck with very high interest rates for the foreseeable future. Try reaching out to your local lawmakers. Maybe with enough pressure from enough of their constituents, lawmakers may introduce policies that force the credit-reporting agencies to take customer complaints more seriously.

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Friday, July 31, 2015

How to Build, Maintain, and Repair Credit

Credit is a necessity in this day and age. Without a good credit score, it can be almost impossible to get a loan, buy a car, or purchase a house. But what can you do if you have little to no credit? How can you get started? Well, according to David Lazarus, in his L.A. Times article, stepping into the world of credit scores and debt payments may not be as difficult as it seems.

Lazarus' sources show that over half of all American consumers have subprime credit scores. 26 million consumers have no data on file with credit companies and 19 million have information that is so outdated that it is almost useless by lenders. These Americans are unlikely to get a loan at all, and if offered, the rate on the loan will be much higher than those provided to others with better records. Lazarus focuses on two main problems: an inability to begin establishing credit and difficulty improving a low score.

There are a few types of loans that are designed to help new borrowers to start to build credit. A credit score is based on borrowing money and paying it back. So, the easiest way to establish credit is by getting a credit card from a store or a bank and using it. The key to the card is to use, not overuse. Build credit by having a balance on the credit card and paying off the balance on time each month. In this way, a lender can see that their money is in good hands. In general, when a lender gives you money, it is because you have a history of on-time payments. In fact, some credit reporting companies such as Experian and Equifax consider monthly rent payments in calculating a credit score.

After you have shown that you can handle a credit card, other loan options, such as "credit builder loans" are available, Such loans, which tend to be less than $1,000, are offered by credit unions as another path by which borrowers can show that they can be trusted. This type of loan is very interesting in that it is based specifically around building credit, rather than providing a borrower with needed money. With a credit builder loan, a designated amount of money is locked in a savings account by the lender. When the last payment has come in from the borrower, the money is released. While it would be just as easy for someone to save up their money by putting a designated amount aside each month, this "loan" allows a saver to build their credit score in the process.

As for those who have already borrowed more money than they can pay back, Lazarus assures them that all is not lost. However, do not let it get so bad that debt collectors come calling. Once the collectors show up, a mark on your file appears that will stay for up to 7 years, affecting your credit score and ability to get a loan. To avoid collection agencies, you can try working out a payment plan with your lender. Contact your creditor immediately if you think you will be behind on your payments.

If your score has already taken a hit, recovering can be difficult, but not impossible. Lazarus suggests that the first step is to get a copy of your credit report and begin paying off outstanding debts. As you pay off more debts, potential lenders tend to trust you more and more. After 7 years, the black mark on your record will disappear, which will bring your score up, but what can you do in the meantime? The best thing you can do, according to Lazarus, is just get your finances in order and avoid accruing more debts. Other than that, he assures those with bad credit that with enough time and good financial planning, things will get better.

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Tuesday, May 19, 2015

FICO Introducing Alternative Credit For Those With Poor or Nonexistent Credit History

4/3/15 - Individuals with low credit scores struggle to get a credit card, or to obtain a mortgage or other loan. Some see this as a fair system, especially since a low credit score usually means that the individual has a history of late payments or outstanding balances. It only makes sense that those with sketchy credit history should be trusted with more credit less readily. However, what about people without any credit history? A recent L.A. Times article discusses the options available for such individuals.

To build up a credit score, someone gets a credit card or loan, then pays back the loan on time, so as to show the credit company that they can be trusted. The length of a person's credit history is a substantial factor in determining how much money a bank or credit company would be willing to lend them. Unfortunately, without credit history, it can be difficult to get a loan in the first place. Without that first loan, the aspiring borrower can't build up a history of timely payments, and will therefore be unable to get a loan. This seemingly endless cycle has many newcomers wondering what to do.

Fortunately for young, first-time borrowers, Fair Isaac Corporation, known for its FICO credit score, has been working together with LexisNexis Risk Solutions and Equifax to create an alternative system for determining credit scores for individuals with little to no credit history. According to their research, someone with a good record of paying utility bills on time would also likely pay credit card bills in much the same pay. Using payment history instead of credit history, this system will create alternative credit scores and provide them to the top credit card issuers. Fair Isaac has yet to release information as to which banks have decided to participate in this program.

This currently unnamed new program is not meant to replace the FICO credit score. Instead, it will provide information only to credit card companies, in order to give credit-less consumers, usually young people, the opportunity to get a credit card and start building up their credit. Once credit has been built up through a history of timely payments, the consumer will be able to rely on the standard FICO credit score in order to get a mortgage or other loan.

According to a representative of LexisNexis, all collected data will be protected under the Fair Credit Reporting Act, so everyone involved will be able to dispute negative events on their credit reports, such as disputed bills. This system appears to have positive effects for all involved. New borrowers will be able to get credit cards with much less of a struggle. Banks will gain access to millions of previously non-existent customers and their interest payments. It's a win-win situation for everyone.

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Each Year, Thousands Mistakenly Declared Dead

1/23/15 - How would you feel if the Social Security Administration and the world's top credit reporting companies proclaim you dead? Well, about 1,000 people per month are mistakenly declared dead by such organizations, leading to a great amount of stress and wasted time in order to reverse such decisions. In his L.A. Times article, David Lazarus describes the tale of George Sledge, a 58-year-old man who has been forced to file a lawsuit in an attempt to force the credit reporting companies to bring him back to life.

While many of the mistakenly listed individuals on Social Security Administration's “Death Master File” are there due to typographical mistakes and other such human errors, a sizable number could be avoided by simple fact-checking on the part of the credit reporting companies. Besides the amount of time you might spend convincing and arguing that you're is still alive, there are much worse consequences.

One such consequence is in regards to your credit score. When anyone is marked as dead, their credit score is automatically set to zero. While this helps to prevent identity theft, it also makes it impossible for a someone like Sledge to get a loan or sign up for a credit card, or even, in some cases, get a job. Furthermore, credit reporting companies have databases full of information that they sell or share with other companies. When someone has been declared dead in one database, it is almost as if they have been simultaneously declared dead in all other databases.

So, even if a person like Sledge were able to get a single company to take him off of the “Death Master File,” all of the other companies would still have him marked as dead. To go through the same rigorous process with every possible company would be straining, if not completely impossible. So, what could an individual in Sledge's position do?

Lazarus suggests that everyone should keep a close eye on their credit information. There are ways to report incorrect information, and if such information is found, you should take care of it sooner rather than later. Most of all, though, Lazarus states that these errors would happen much less often if companies would do their due diligence. A simple phone call might be enough to prevent a living person from being mistakenly marked as deceased, and that could make all the difference.

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Home Equity Used For Long-Term Investments

12/12/14 - A decade ago, before the Great Recession hit in full effect, it was common for people to take out a line of credit on the equity of their homes. This “quick cash” was spent non-productively, used to buy groceries or spent on vacations, rather than being used as an investment. Over time, people began to cease such “wasteful” ventures and have slowly been learning to use Home Equity Lines of Credit (HELOCs) in a smarter manner. In his article in the Los Angeles Times, Kenneth Harney describes how a recent increase in the use of such lines of credit is a good thing for the economy.

Although such HELOCs were once a way for people to pull money out of their homes for regular expenses, people have generally learned not to jeopardize the equity of their homes unless investing in something safe. For example, most of those who took money through a HELOC used it to make improvements on their homes, or to pay off higher-interest debts, such as those on credit cards. Both of these provide long-term benefits for the home-owner. Thus, it is shown that tapping into home equity is not always a bad thing. For those who make smart investments using the line of credit, home equity can be used and quickly earned back.

Until recently, most home-owners were wary of HELOCs, remembering the negative consequences that had arisen from the use of such funds for day-to-day expenses. Now, though, equity lines are up 21%, which, according to Harney's sources, could mean that people are starting to become more confident in the economy's stability. With less fear of economic collapse and an improvement in equity and interest rates, more home-owners consider a line of equity to be a “safe investment.”

Besides a stabilizing economy, HELOCs have become safer because of a crackdown by lenders. Lenders have become more careful as to who they lend to, making sure that credit scores and financial reserves are up to par. As Harney concludes, now is the time to look into home equity lines of credit. Such money, if used right, could have a dramatic economic impact, both personally and nationally.

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Credit Unions Providing Home Loans

11/21/14 - While home loans were once the responsibility of major financial institutions like banks, the post-recession mortgage loans have slowly but surely been making their way into the realm of the credit unions. Such credit unions have been amassing members, and currently own over 8% of all mortgages, three times as much as were owned before the Great Recession. Lew Sichelman's L.A. Times article goes into how these credit union loans can actually be preferable to those provided by “standard” institutions.

Credit unions, which are member-controlled, provide an alternative to common loan institutions that commonly increase the cost of a loan through miscellaneous fees. Anyone can join a credit union, and their non-profit standing keeps people interested in their loans, especially with our currently troubled housing market. During the recession, while many lenders pulled back and restricted the loans they were willing to grant, credit unions stayed open, making their loans available to those whom they deemed a worthwhile risk.

These lenders are different; they are run by the people. Every member has a say in how the union should be run, and this is a big part of why credit unions have been increasing in success. While mortgage loans were once a minimal area of focus for credit unions, new interest has led to mortgage loans encompassing over 40% of all loans provided by such institutions. The interest rates on credit union loans may be the same as those from other lenders, but a more personal touch of a credit union appears to be one of the factors drawing in new customers. Borrowers, of late, tend to have more faith in them, rather than in the banks and other lenders that once held the vast majority of mortgages and other such loans.

Although they are still relatively new to most, credit unions are gaining ground as they accomplish various goals. The common mortgage loan from a credit union is the normal, 30-year fixed rate, but many of these institutions have been applying innovative new techniques to make these loans more manageable. From ways of scheduling your mortgage so that you finish at a specific time, to loans that reset their interest rates to market level every five years, credit unions have developed ways to make their loans as consumer-friendly as possible. All in all, a standard banking institution may be great, but credit unions might be an option for many potential borrowers to seriously consider.

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Credit Scores Now to Include Rent Information

9/26/14 - An individual's credit score is one of the largest factors affecting their ability to get a mortgage or other type of loan. Unfortunately, your credit score is determined mainly from the payment of debts: credit card bills, loan payments, etc. Even if someone has paid their rent on time every month, or has made routine payments on their cable, cell phone, or utilities bills, all of which should be a good indicator of reliability and credit, this information is nowhere to be found on their credit profile. In an L.A. Times article, Kenneth R. Harney describes how two national credit bureaus: Experian and TransUnion, have recently started including rental payment information in their determination of an individual's credit scores.

Up until recently, there was nothing that required landlords or phone and cable companies to report payment information to the credit institutions, nor was there any system to make this reporting of data feasible. While the reporting of this payment information is still voluntary, a newly created connection between these credit bureaus and an online service called RentTrack has made it much more convenient for rental property managers to report payment information from their tenants' records.

According to Harney and a study by TransUnion, this addition of rental payment information can have a dramatic effect on a renter's credit score; in some cases, their scores increase up to 10 points. Furthermore, this research showed that even the shift from renter to home-owner can raise scores considerably. With the RentTrack system, as well as another system called ResidentialCredit, tenants in any situation benefit from the ease and reliability of electronic tracking of their payment information.

While the RentTrack system currently only keeps information on rental payments, Harney believes that it will just be a matter of time before telecommunications, cable, and utilities information make their way into the system. While RentTrack is the main service mentioned in the article, some other companies, such as Equifax and ECredable.com, also hold information regarding utility payments, rental data, and more, which can be given to a mortgage loan officer for use in determining an individual's credit and determining whether they will qualify for a loan.

As Harney concludes, while an individual's credit score was once based solely on mortgage and credit card payments, that is no longer the case. As such, we may soon witness a new trend: even those individuals lacking “traditional” credit information will find it possible to become first-time homeowners.

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