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.
Showing posts with label Equifax. Show all posts
Showing posts with label Equifax. Show all posts
Thursday, January 29, 2009
Wednesday, May 28, 2008
Sallie Mae Wrecks Credit Scores of One Million Loan Holders
A glitch in the way Sallie Mae – one of the nation's largest student loan firms – reported information to the credit bureaus last week caused the credit scores of approximately one million loan holders to plummet – some by as much as 150 points.
According to an article on msbnc.com, the borrowers affected by the glitch were the ones who used graduated payment plans. These plans assume that former students will make more income as they progress in their careers, and thus allow them to pay back less in the early years of their loan, and more in the later years.
FICO, however, interpreted the new reporting as "arrangements made with credit grantor to make partial payments." This made it seem as though the borrower had negotiated for a reduced payment plan after being delinquent – a big black mark on a credit report. And FICO's scoring algorithms penalize those with top credit scores more than those who are consistently delinquent.
According to Sallie Mae, the glitch affected "roughly 10 percent of our 10 million customers," and only impacted Equifax credit reports and scores. (The reporting error was fixed before TransUnion and Experian updated their files.)
For any affected consumers who were in the process of getting a loan, insurance or a job, this would have had a devastating impact on the rate and terms they were able to get. While Sallie Mae says the problem has been corrected and scores returned to what they should have been prior to the glitch, the only way for borrowers to know for sure is to purchase a copy of their credit report.
Given that credit scores control so much of our lives, this situation exemplifies the concern that a simple error can wreak havoc on the financial health of millions… and reinforces why you should always keep an eye on your credit.
According to an article on msbnc.com, the borrowers affected by the glitch were the ones who used graduated payment plans. These plans assume that former students will make more income as they progress in their careers, and thus allow them to pay back less in the early years of their loan, and more in the later years.
FICO, however, interpreted the new reporting as "arrangements made with credit grantor to make partial payments." This made it seem as though the borrower had negotiated for a reduced payment plan after being delinquent – a big black mark on a credit report. And FICO's scoring algorithms penalize those with top credit scores more than those who are consistently delinquent.
According to Sallie Mae, the glitch affected "roughly 10 percent of our 10 million customers," and only impacted Equifax credit reports and scores. (The reporting error was fixed before TransUnion and Experian updated their files.)
For any affected consumers who were in the process of getting a loan, insurance or a job, this would have had a devastating impact on the rate and terms they were able to get. While Sallie Mae says the problem has been corrected and scores returned to what they should have been prior to the glitch, the only way for borrowers to know for sure is to purchase a copy of their credit report.
Given that credit scores control so much of our lives, this situation exemplifies the concern that a simple error can wreak havoc on the financial health of millions… and reinforces why you should always keep an eye on your credit.
Friday, January 25, 2008
Did You Really Think Your Salary Was Confidential?
In every place I've worked, my paycheck was always delivered in packaging that defied wandering eyes... usually requiring the removal of three separate tear-off strips, a battle with a letter opener, and sometimes even a paper cut or two.
But like any other piece of identifying data that could be possibly be collected and sold for a profit, your salary information is a commodity. Each payday, The Work Number, a product of Equifax, collects, stores and re-sells salary data and job titles on 46 million Americans - one-third of the workforce.
If you've worked for Fortune 500 companies like American Airlines, Boeing, Cisco, Coca Cola, Fed Ex, Ford Motor, GE, Hewlett Packard, Intel, Kmart, Lockheed Martin, Marriott, Microsoft, Motorola, Nokia, Pepsi, Sony, Visa, Wal Mart, Westinghouse, or government employers like the Department of Defense, U.S. Department of Energy, The Coast Guard, State of California, State of Missouri, or the cities of Detroit, Fort Worth and Pasadena sometime during the last 10 years, you're in the database.
There are currently more than 1,700 employers contributing data. The Work Number has 165 million employment records for current and former employees on file. The data, which also includes Social Security numbers, is sold to lenders, employers, landlords, and government-sponsored social service programs (such as food stamps) that want to conduct background checks or verify incomes.
The Work Number claims that problems with the data are rare: just 150 disputes a month (compared with 1.1 million verifications) because the data is automatically updated by the employers each time a paycheck is issued.
If you have been denied a job or loan because of the data provided by this service, the company that bought the report is required by law to notify you. In order to be compliant with the federal Fair Credit Reporting Act (FCRA), consumers are allowed to review and dispute information in The Work Number's database.
With identity theft issues making headlines on a regular basis, some privacy experts view this collection of data as a troubling issue. According to Elizabeth De Armond, an expert on privacy law and assistant professor at Chicago-Kent College of Law, "Any collection of personally identifying information like that leads to the high potential for identity theft. It's sensitive data."
Your Credit Mama agrees... this is just one more reason to check your credit reports regularly!
But like any other piece of identifying data that could be possibly be collected and sold for a profit, your salary information is a commodity. Each payday, The Work Number, a product of Equifax, collects, stores and re-sells salary data and job titles on 46 million Americans - one-third of the workforce.
If you've worked for Fortune 500 companies like American Airlines, Boeing, Cisco, Coca Cola, Fed Ex, Ford Motor, GE, Hewlett Packard, Intel, Kmart, Lockheed Martin, Marriott, Microsoft, Motorola, Nokia, Pepsi, Sony, Visa, Wal Mart, Westinghouse, or government employers like the Department of Defense, U.S. Department of Energy, The Coast Guard, State of California, State of Missouri, or the cities of Detroit, Fort Worth and Pasadena sometime during the last 10 years, you're in the database.
There are currently more than 1,700 employers contributing data. The Work Number has 165 million employment records for current and former employees on file. The data, which also includes Social Security numbers, is sold to lenders, employers, landlords, and government-sponsored social service programs (such as food stamps) that want to conduct background checks or verify incomes.
The Work Number claims that problems with the data are rare: just 150 disputes a month (compared with 1.1 million verifications) because the data is automatically updated by the employers each time a paycheck is issued.
If you have been denied a job or loan because of the data provided by this service, the company that bought the report is required by law to notify you. In order to be compliant with the federal Fair Credit Reporting Act (FCRA), consumers are allowed to review and dispute information in The Work Number's database.
With identity theft issues making headlines on a regular basis, some privacy experts view this collection of data as a troubling issue. According to Elizabeth De Armond, an expert on privacy law and assistant professor at Chicago-Kent College of Law, "Any collection of personally identifying information like that leads to the high potential for identity theft. It's sensitive data."
Your Credit Mama agrees... this is just one more reason to check your credit reports regularly!
Thursday, December 27, 2007
It's Good to Have Limits
A couple of years ago, Federal Reserve researchers reviewed 310,000 individual consumer credit files. Among their findings: nearly half (46%) were missing at least one credit limit on their report.
For anyone who is concerned about improving or maintaining their credit score, this is bad news... because when companies like Capital One do not report credit limits to the credit reporting agencies (Equifax, Experian and TransUnion), your credit score can drop significantly.
The first question: How does this happen?
Part of your credit score -- 30% -- is determined by how you use your credit. If you tend to maintain balances at or close to your credit limit, your score will not be as high.
Credit reporting agencies use special software to calculate your credit utilization ratios. Credit utilization refers to how much of your available credit you are using. If a company does NOT report your card limit, the software may substitute your highest balance in place of your actual limit to calculate your ratio.
So, for example, if you have a credit card with a $5,000 credit limit, and the highest monthly balance you've ever had on the card is $2,500, you have a 50% utilization ratio. However, if your most recent balance is $2,000, and the credit card company doesn't report your $5,000 limit, the scoring software may use the highest monthly balance ($2,500) to determine your limit. That would make it appear as though you are nearly maxxed out with a credit utilization ratio of 80% - which could drop your score 20 to 50 points or more.
Recent data from Experian revealed that those with the highest credit scores used only, on average, 17.8% of their available credit.
The next question - Why do companies withhold credit limits?
The answer: Competition and the almighty dollar.
With the average American carrying four credit cards with balances of $9,000-$13,000, it's becoming increasingly difficult for lenders to gain new customers. As a result, they are trying to lure existing cardholders with offers of low balance transfers, cash rebates and more.
Companies like Capital One hope to reduce "poaching" of customers by their competitors, who routinely sift through national credit bureau data looking for prospective customers. The practice of withholding credit limits artificially lowers the credit scores of their customers, theoretically making them less attractive to other lenders. And it might mean that consumers using Capital One cards are paying higher interest rates on their other credit accounts. This makes it more likely that you will remain a captive customer of Capital One and less likely to be offered the credit you deserve from other companies.
Those hurt the most by this practice are consumers with few credit accounts and those just beginning to build their credit history.
Class action lawsuits have been initiated, accusing the Big Three of deliberately shielding data despite knowing that this practice reflects negatively on credit score calculations.
Until the lawsuit is settled, consumers would be wise to review their credit files to see which companies are not reporting accurate credit limit data, and to be cautious about using these cards.
For anyone who is concerned about improving or maintaining their credit score, this is bad news... because when companies like Capital One do not report credit limits to the credit reporting agencies (Equifax, Experian and TransUnion), your credit score can drop significantly.
The first question: How does this happen?
Part of your credit score -- 30% -- is determined by how you use your credit. If you tend to maintain balances at or close to your credit limit, your score will not be as high.
Credit reporting agencies use special software to calculate your credit utilization ratios. Credit utilization refers to how much of your available credit you are using. If a company does NOT report your card limit, the software may substitute your highest balance in place of your actual limit to calculate your ratio.
So, for example, if you have a credit card with a $5,000 credit limit, and the highest monthly balance you've ever had on the card is $2,500, you have a 50% utilization ratio. However, if your most recent balance is $2,000, and the credit card company doesn't report your $5,000 limit, the scoring software may use the highest monthly balance ($2,500) to determine your limit. That would make it appear as though you are nearly maxxed out with a credit utilization ratio of 80% - which could drop your score 20 to 50 points or more.
Recent data from Experian revealed that those with the highest credit scores used only, on average, 17.8% of their available credit.
The next question - Why do companies withhold credit limits?
The answer: Competition and the almighty dollar.
With the average American carrying four credit cards with balances of $9,000-$13,000, it's becoming increasingly difficult for lenders to gain new customers. As a result, they are trying to lure existing cardholders with offers of low balance transfers, cash rebates and more.
Companies like Capital One hope to reduce "poaching" of customers by their competitors, who routinely sift through national credit bureau data looking for prospective customers. The practice of withholding credit limits artificially lowers the credit scores of their customers, theoretically making them less attractive to other lenders. And it might mean that consumers using Capital One cards are paying higher interest rates on their other credit accounts. This makes it more likely that you will remain a captive customer of Capital One and less likely to be offered the credit you deserve from other companies.
Those hurt the most by this practice are consumers with few credit accounts and those just beginning to build their credit history.
Class action lawsuits have been initiated, accusing the Big Three of deliberately shielding data despite knowing that this practice reflects negatively on credit score calculations.
Until the lawsuit is settled, consumers would be wise to review their credit files to see which companies are not reporting accurate credit limit data, and to be cautious about using these cards.
Wednesday, December 5, 2007
Equifax Must Pay $2.9 Million for Destroying Woman's Credit
Yes, Virginia, there is a Santa Claus.
This year he will be visiting Angela, an Orlando woman, with an extra special gift - $2.9 million - from Equifax, one of the big three credit reporting agencies.
Angela, a medical transcription worker, tried for over a decade to have erroneous information deleted from her credit file. Seems Equifax repeatedly confused her credit information with that of a deadbeat who had a similar name. Despite her continued attempts to dispute the information in her credit report, Equifax kept passing along the wrong information.
This led to Angela's inability to get student loans, credit cards, and even ATM cards. She couldn't apply for a mortgage. She finally sued in 2003.
The jury apparently thought Equifax deserved more than just a slap on the hand. They decided that Equifax must pay her $219,000 in actual damages and $2.7 million in punitive damages for "negligent violation of federal credit-reporting laws." (Two other companies named in the suit - Experian and American Recovery Systems - opted to settle the case out of court.)
According to one expert who testified in the trial, "people have been victimized by the companies' streamlined, automated process of 'investigating' alleged credit-file errors... the process is set up to save money and boost profits rather than protect consumers."
I guess Santa will be giving Equifax a great big lump of coal this year.
This year he will be visiting Angela, an Orlando woman, with an extra special gift - $2.9 million - from Equifax, one of the big three credit reporting agencies.
Angela, a medical transcription worker, tried for over a decade to have erroneous information deleted from her credit file. Seems Equifax repeatedly confused her credit information with that of a deadbeat who had a similar name. Despite her continued attempts to dispute the information in her credit report, Equifax kept passing along the wrong information.
This led to Angela's inability to get student loans, credit cards, and even ATM cards. She couldn't apply for a mortgage. She finally sued in 2003.
The jury apparently thought Equifax deserved more than just a slap on the hand. They decided that Equifax must pay her $219,000 in actual damages and $2.7 million in punitive damages for "negligent violation of federal credit-reporting laws." (Two other companies named in the suit - Experian and American Recovery Systems - opted to settle the case out of court.)
According to one expert who testified in the trial, "people have been victimized by the companies' streamlined, automated process of 'investigating' alleged credit-file errors... the process is set up to save money and boost profits rather than protect consumers."
I guess Santa will be giving Equifax a great big lump of coal this year.
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