Yesterday, Fair Isaac Corp. (creator of the FICO score) and TransUnion, one of the three major credit bureaus, rolled out the long-anticipated FICO '08 to lenders.
The new scoring model changes a number of calculations. It's more forgiving of one-time "slips" – for example, the impact of a late payment will be less for someone who is in good standing on multiple credit accounts. Conversely, FICO '08 will be harder on those will have less impact on your credit score, whereas "repeat offenders" will see credit scores reflect habitual delinquencies. Those with good credit should see a slight increase in their scores; those with multiple delinquent accounts will see their score drop. The score will continue to range from 300 to 850.
Equifax is expected to roll out FICO '08 in the second quarter. Experian, which is currently embroiled in litigation with Fair Isaac, is not disclosing whether it will implement the new FICO '08 model. However, Experian recently sent a letter of termination to Fair Isaac, stating that it will no longer allow MyFICO to provide Experian MyFico scores to consumers. (Experian will continue to sell consumers the PLUS and VantageScores, which are NOT the scores used by lenders.)
One major concession in FICO '08 – the scoring model will continue to count authorized users (such as children or spouses) on credit card accounts. An authorized user on a good credit account will get a credit score boost. Fair Isaac has purportedly tweaked the algorithm to prevent credit repair companies from gaming the system.
According to the Wall Street Journal, Fair Isaac predicts FICO '08 will improve the accuracy of lending decisions by as much as 15%. But it may be a while before the score is widely available to consumers, as lenders will be carefully evaluating the score and deciding whether or not to use it.
Thursday, January 29, 2009
Wednesday, January 21, 2009
Possibly the Biggest Credit Data Breach Ever?
A global cyber fraud operation is thought to be behind what may be the biggest credit data breach ever reported, eclipsing the 2007 TJX breach that compromised the data of 45 million customers.
The breach occurred on the internal computer network of Heartland Payment Systems, a major payment processing company that processes 100 million transactions each month from about 250,000 businesses nationwide.
How did this happen?
After a customer swipes a credit or debit card, the information is then transmitted to obtain authorization from a bank or payment company. During this brief transmission, the data is unencrypted. "Sniffer" software, which may have been installed on Heartland's network as far back as May 2008, captured card numbers, expiration dates, and some cardholder names and internal bank codes during this authorization period. Personal security codes are not believed to have been compromised.
What credit and debit cards are impacted?
Visa, MasterCard, Discover and American Express customers are vulnerable.
How many people could be affected?
An exact number of compromised customers is not available; however, according to a report in the New York Times, 600 million or more cardholders might be affected.
When was this breach discovered?
The breach was discovered last week by a forensic investigator following inquiries by Visa and MasterCard of suspicious activity surrounding processed card transactions.
What remedies do customers have?
Heartland has set up a Web site to provide updates to customers about the incident: www.2008breach.com. Cardholders are not responsible for unauthorized fraudulent charges made by third parties. The United States Secret Service and the Department of Justice are actively involved
Please review your credit card statements carefully each month for any charges that you don't recognize.
The breach occurred on the internal computer network of Heartland Payment Systems, a major payment processing company that processes 100 million transactions each month from about 250,000 businesses nationwide.
How did this happen?
After a customer swipes a credit or debit card, the information is then transmitted to obtain authorization from a bank or payment company. During this brief transmission, the data is unencrypted. "Sniffer" software, which may have been installed on Heartland's network as far back as May 2008, captured card numbers, expiration dates, and some cardholder names and internal bank codes during this authorization period. Personal security codes are not believed to have been compromised.
What credit and debit cards are impacted?
Visa, MasterCard, Discover and American Express customers are vulnerable.
How many people could be affected?
An exact number of compromised customers is not available; however, according to a report in the New York Times, 600 million or more cardholders might be affected.
When was this breach discovered?
The breach was discovered last week by a forensic investigator following inquiries by Visa and MasterCard of suspicious activity surrounding processed card transactions.
What remedies do customers have?
Heartland has set up a Web site to provide updates to customers about the incident: www.2008breach.com. Cardholders are not responsible for unauthorized fraudulent charges made by third parties. The United States Secret Service and the Department of Justice are actively involved
Please review your credit card statements carefully each month for any charges that you don't recognize.
Saturday, January 10, 2009
Lenders Begin to Look Beyond FICO
A few years ago, Fair Isaac reported that the average FICO credit score in the U.S. was 723 out of a possible 850. The higher the score, the greater the likelihood that the borrower would repay a loan.
At least that was what Fair Isaac pitched to lenders.
Thus spawned several years of streamlined loans – loans that were predicated solely on credit score. "Stated" loans allowed people with good credit scores to put down any income figure on a loan application and get approved. The sheer number of applications in an overheated market where an hour could mean a $50,000 difference in selling price necessitated glossing over details that were mandatory – or at least a consideration – in pre-FICO days. (I know you're thinking, what, there was a time when credit scores didn't exist? Credit scores weren't developed until the late 50s.)
According to an article in Time magazine,
The rise in defaults among "good credit" borrowers is beginning to force lenders to revert back to more traditional ways of predicting risk. Consumer advocates who have long opined that a three-digit credit score managed by for-profit entities is an inaccurate measure of creditworthiness should be pleased at this trend, which takes a number of variables (such as phone bill payment records) into account - especially helpful for those borrowers with thin or non-existent credit histories.
At least that was what Fair Isaac pitched to lenders.
Thus spawned several years of streamlined loans – loans that were predicated solely on credit score. "Stated" loans allowed people with good credit scores to put down any income figure on a loan application and get approved. The sheer number of applications in an overheated market where an hour could mean a $50,000 difference in selling price necessitated glossing over details that were mandatory – or at least a consideration – in pre-FICO days. (I know you're thinking, what, there was a time when credit scores didn't exist? Credit scores weren't developed until the late 50s.)
According to an article in Time magazine,
A few years ago, Fair Isaac produced a chart predicting the odds that a borrower with a certain credit score would default on a mortgage. For example, it predicted that a loan to a borrower with a 680 score had a 1 in 144, or 0.7%, chance of becoming delinquent over the life of the loan; a person with a 700 FICO score would have a 1 in 288 chance, or just 0.3%.
Unfortunately, those predictions proved too optimistic. According to mortgage-data tracker First American Loan Performance, banks have already foreclosed on or are in the process of foreclosing on 1.5% of the mortgages originated in the last three months of 2007 to individuals with credit scores between 660 and 720. And those mortgages have been around for only a year. Over 30 years, the delinquency rate on those home loans is likely to be much higher.
The rise in defaults among "good credit" borrowers is beginning to force lenders to revert back to more traditional ways of predicting risk. Consumer advocates who have long opined that a three-digit credit score managed by for-profit entities is an inaccurate measure of creditworthiness should be pleased at this trend, which takes a number of variables (such as phone bill payment records) into account - especially helpful for those borrowers with thin or non-existent credit histories.
Monday, January 5, 2009
New Year's Resolution – Get Your Credit in Good Shape!
Ever since the credit bureaus were mandated to provide one free credit report each year, I've made requesting and reviewing my credit report part of my New Year tradition. It's my opportunity (and responsibility!) to make sure that I haven't been the victim of identity theft and that the credit bureaus are reporting my credit history accurately.
I was especially motivated to do so this year because I recently discovered that one of the credit bureaus is reporting erroneous information – information that is causing my credit score to vary 50-75 points from the other two scores.
This year, make a resolution to get your credit and finances in good health. Remember, the ONLY place to get your credit report for free (per the federal Fair Credit Reporting Act) is https://www.annualcreditreport.com/... NOT freecreditreport.com.
You may also order your credit reports by calling toll-free to 877-322-8228, or by mail. To request your credit report by mail:
Here are some tips on ordering your credit report (courtesy of Bankrate.com):
Free is free: If you have to supply a credit card or checking account number, it means you're going to pay. You may get the initial credit report for free, but you may also be signing up for a continuing service at a price.
No junk mail: Don't respond to e-mail offers for free credit reports -- they're almost always spam.
Be secure: Always be sure you're on a secured Web site when entering your personal information.
Keep it secret: When phoning the toll free number (877-322-8228) for a free credit report, ask that only the last four digits of your Social Security number are displayed on the reports to be mailed to you.
Reduce solicitations: Don't give out your e-mail address to obtain a federally mandated free credit report -- it is not required.
Run from pop-ups: If you do choose to go online to https://www.AnnualCreditReport.com and see pop-up ads, or if the site is not secure, close your browser and start over. Secure sites will have a padlock logo in the corner, and the address will begin with https:// instead of just http://.
Check and uncheck: If you go online to https://www.AnnualCreditReport.com, be sure to look for any pre-checked marketing or newsletter offers. If you decide you do not want these offers, uncheck the box.
I was especially motivated to do so this year because I recently discovered that one of the credit bureaus is reporting erroneous information – information that is causing my credit score to vary 50-75 points from the other two scores.
This year, make a resolution to get your credit and finances in good health. Remember, the ONLY place to get your credit report for free (per the federal Fair Credit Reporting Act) is https://www.annualcreditreport.com/... NOT freecreditreport.com.
You may also order your credit reports by calling toll-free to 877-322-8228, or by mail. To request your credit report by mail:
- Download the request form (You need an Adobe viewer to view the requested form. Download the free Adobe viewer)
- Print and complete the form
- Mail the completed form to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
Here are some tips on ordering your credit report (courtesy of Bankrate.com):
Free is free: If you have to supply a credit card or checking account number, it means you're going to pay. You may get the initial credit report for free, but you may also be signing up for a continuing service at a price.
No junk mail: Don't respond to e-mail offers for free credit reports -- they're almost always spam.
Be secure: Always be sure you're on a secured Web site when entering your personal information.
Keep it secret: When phoning the toll free number (877-322-8228) for a free credit report, ask that only the last four digits of your Social Security number are displayed on the reports to be mailed to you.
Reduce solicitations: Don't give out your e-mail address to obtain a federally mandated free credit report -- it is not required.
Run from pop-ups: If you do choose to go online to https://www.AnnualCreditReport.com and see pop-up ads, or if the site is not secure, close your browser and start over. Secure sites will have a padlock logo in the corner, and the address will begin with https:// instead of just http://.
Check and uncheck: If you go online to https://www.AnnualCreditReport.com, be sure to look for any pre-checked marketing or newsletter offers. If you decide you do not want these offers, uncheck the box.
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