Credit Blog

Credit Score Lifestyle Design

Posted on October 31, 2011 by Reney DuBose

If you’re an MLO, let me ask you a question…How many deals did you lose last year due to poor credit scores? If the answer is “too many” you need to learn more about the concept of “Credit Score Lifestyle Design”.

You’re probably already familiar with the term “Lifestyle Design”. Many people simply design the type of lifestyle they want and live it. For example, my wife and I like the sunshine, water and warm temperatures, so we’ve designed our lifestyle as such and choose to live in Florida by the Gulf. Others want to spend more time with their family at home, so they design careers that allow them to work from home. Some train as flight attendants or pilots to a live a lifestyle of international travel. You get the picture.

But what is Credit Score Lifestyle Design? Well it’s a term that I promise will eventually become increasingly more familiar to you and most home buyers. When it does, just remember you heard it here first!

Credit Score Lifestyle Design is the concept of optimizing your credit scores by understanding how your FICO credit scores are influenced by the information contained in your credit reports. By making better informed credit choices, your clients can manage the credit information contained in their credit reports to optimize their credit scores.

It’s way beyond the concept of simple credit repair that many credit professionals provide. While its true that the application of legitimate credit repair efforts can help to legally resolve non-compliant credit information reported by the credit bureaus, there is another level of credit score help that can significantly influence your clients’ credit scores as well.

It’s sort of like bowling. Simply correcting errors on the bowler’s score card may not necessarily result in the best score possible. The bowler needs to avoid throwing gutter balls, and bowl more strikes to get the best bowling score possible. Once the bowler is taught what’s necessary to get more “X’s” on his score card, when the final tally is complete, his scores should increase!

Likewise, there are 10 FICO credit score cards with 24 variables, and 300 components that all influence your clients’ credit scores. Every change in the credit information contained in your clients’ credit report has the potential to negatively or positively influence the factors affecting their credit scores.

Purposely choosing, by design, what credit information to influence and when, can be critical to the process of optimizing your clients’ credit scores. The more they know about why it works, the better they will become at managing their credit information and developing a credit score lifestyle design. In the process, it may just help you to close more deals next year.

Just remember, you heard it here first!

Posted in Credit Repair, Fico Scores, mortgages | Tagged credit repair | 1 Comment

Is “Piggy Backing” okay?

Posted on September 30, 2011 by Reney DuBose

“Piggy Backing” – A Desperate Attempt to Improve Credit Scores

Did you know that about 30 percent of the 165 million credit bureau files in America have at least one “piggy back” account? You may also know these accounts by the more common name of “authorized user” accounts. Why is this important to you as a mortgage lender? Because you should know that there is a difference between a legitimate “authorized user” account and a “piggy back” account when it comes to credit scoring.

You may have clients with credit scores that have been built by using “piggy back” accounts. If so, beware. More and more credit scoring models are contemplating eliminating the use of such accounts in their scoring algorithms. As a result, your clients’ credit scores may suddenly plummet. So you may want to give your clients some good advice and inform them of the difference between a legitimate authorized user account and piggy backing.

What is an Authorized User Account ?
Authorized user accounts refer to the practice of “renting” the credit history of someone with high credit scores to improve your own credit scores. An authorized user account was designed for situations where a spouse, a child, or even a close friend was added to a credit card holder’s account to help them establish credit.

What is Piggybacking ?
However, another form of authorized user accounts, called piggy backing has recently become prevalent. Piggybacking is a “for-profit” form of “renting” someone’s good credit rating to improve another’s credit scores. Piggy backing allows people with bad credit to pay a fee to piggyback on the good payment histories of a credit card holder by becoming an authorized user on their account.

Usually, a person with low credit scores will pay a fee to a company to locate a complete stranger willing to allow a person with poor credit to be added to their credit card account temporarily, to boost the credit scores of the person with poor credit. The person with poor credit can then qualify for a lower interest rate loan or even get approved for a loan where they would not otherwise have qualified.

There are several companies in the business of brokering such piggyback arrangements. They can charge as much as $900 to match consumers willing to “rent” their good credit accounts to others.

Unfortunately, this is yet another example of an abusive practice that some consumers resort to in a desperate attempt to improve their credit scores. So what was originally intended as a legitimate means for parents to help their kids to establish good credit, or for one spouse to assist another, has now evolved into yet another unscrupulous consumer predator device.

It’s unfortunate that uninformed consumers feel they have to resort to such measures to try and improve their credit scores, when the professional use of consumer protection laws can be enforced on their behalf to help legally improve their credit.

This is one of many reasons why it’s important to educate consumers about their options to work with professional credit repair organizations to help them navigate thru the maze of the legal credit improvement process.

It also reinforces the need to overhaul the credit repair industry and revise the Credit Repair Organizations Act to establish a legislative framework that provides for licensing of professional credit repair organizations that consumers can then rely upon for help.

The current regulatory policies of simply informing consumers they can fix their credit themselves and the practice of conducting “sting” operations to try and locate the bad apples just isn’t effective. Consumers know they have the right to repair their own credit. However, many don’t have the time or inclination to do it themselves. In this new economy consumers are in need of help, to legally improve their credit, more than ever. Left without a regulatory system for choosing from a selection of licensed credit repair organizations, many will continue to simply fall prey to quick fix schemes like “piggybacking” out of desperation.

However, in the meantime, some states are taking measures to enact laws defining “piggybacking” as fraudulent activity to help curb such practices. But I believe a better approach is to implement Federal and/or state regulatory licensing requirements to regulate credit repair organizations, similar to those enacted for mortgage lenders. This will enable consumers to more confidently seek professional help to legally improve their credit. Also, regulators can operate a more effective and efficient system of licensing of credit repair organizations up front.

I believe such a regulatory system would work better for consumers, regulators and our economy.

But I must admit, as a licensed credit attorney and the co-founder of a reputable credit repair organization myself, I have my biases for such an approach. However, if you also agree, you can “piggyback” on this approach by telling your state and federal elected officials and the new Consumer Financial Protection Bureau.

Posted in Consumer Protection, Credit Bureaus, credit history, Credit Repair, Credit Repair Tips, Credit reports, Fico Scores | Leave a comment

Why Can’t Consumers See Their “REAL” Credit Scores?

Posted on August 24, 2011 by Reney DuBose

One of our clients recently called and asked if we felt her scores had improved enough to qualify for financing to buy a new car. I was pleased to discuss the status of her credit improvement plan. Her scores had actually improved by over 100 points. She was very excited about her credit score increase.

However, I had to caution her that when she goes to get financing for her new car, the auto financing company or bank will more than likely see a different credit score. I proceeded to explain the intricacies of the various “industry” credit scores like Auto Scores, Insurance Scores, and Mortgage Scores, much to her bewilderment.

Yet I ventured on with the complexities of the differences between the various types of credit scores. I mustered up enough stamina to dive into a treaties about why she saw a different score than the credit score the auto lender would use to make their lending decision…

I told her that the score that most consumers see is an “educational score” or a generic scoring model sold to consumers by the Big 3 Credit Bureaus or one of their many Resellers or companies like Privacy Guard. However, these are not necessarily the scores that lenders use to make credit decisions affecting consumers.

As I plowed thru the minutia of credit scoring models, I’m sure there was a glazed look on her face indicating a mass state of confusion. And I totally understand why. You would think that the credit score you see as a consumer would naturally be the same credit score your lender uses to assess your credit worthiness. Otherwise, what’s the point?

This issue is the subject of much debate in the credit reporting and credit scoring industry. As a matter of fact, the new Consumer Financial Protection Bureau just completed a report to congress last month that addresses many of the issues surrounding the various types of credit scores and their affects on consumers.

Hopefully, it will ultimately result in consumers not only having the right to know which credit scores were used in the lending decision, but also the right to know exactly which type of credit score a lender uses BEFORE the consumer applies for credit. It would also be nice if consumers had the right to see for themselves, the same credit score the lender would use in their lending decision BEFORE they apply for credit. This way consumers would have an opportunity to check their true credit scores and make informed decisions about whether to apply for credit with a particular lender and if so, when.

But just in case my own personal wish list of consumer “Credit Scoring Bill of Rights” never happens, and just in case you’re actually interested in knowing about the detailed minutia of credit scoring models, here’s a summary of the various types of credit scores as reported to Congress by the CFPB:

1. FICO scores

“FICO scores are still the most widely used generic scoring models. One industry observer estimates that FICO had over 90 percent of the market share in 2010 of scores sold to firms for use in credit-related decisions.

There are numerous FICO scoring models. Because of differences in the data at the three CRAs, FICO develops unique generic scoring models for use at each of the three CRAs.

There are also several different generations of generic FICO scores in use, and FICO develops industry models for credit cards, mortgages, and auto loans. All scoring models FICO creates are built to generate scores that fall in the range 300 to 850.

2. Consumer reporting agency scores

The CRAs each have their own proprietary generic scoring models. These scoring models were originally developed to predict performance on credit obligations, but are currently sold primarily as “educational scores” for consumers. Examples of the proprietary generic scores sold by the CRAs are the following:

• Equifax: “Equifax Credit Score.” Produces scores in the range 280-850.
• Experian: “Experian Plus Score.” Produces scores in the range 330-830.
• TransUnion: “TransRisk New Account Score.” Produces scores in the range 300-850.

This scoring model was developed to predict performance on new credit accounts, unlike the standard FICO score or the VantageScore, which were developed to predict risk on both new and existing accounts. The CRAs also build custom scores for individual clients on a contract basis.

3. VantageScore

VantageScore LLC is a score development company established as a joint venture of the three CRAs. The VantageScore models generate generic scores. A basic difference between VantageScore’s models and the FICO models is that for each generation of VantageScore, the model is the same at each of the three CRAs. VantageScore builds its models using development databases that combine data from all three CRAs. If all data about a consumer were the same at each of the three CRAs, the VantageScore for that consumer would be the same no matter which CRA’s credit report was used to provide the data.

There are currently two VantageScore models in use. The original VantageScore was released in March 2006; an update of the VantageScore model, VantageScore 2.0, became available for use in January 2011. The VantageScore models produce scores on the range 501-990.”

I warned you about the minutia. The bottom line is you may never get the right to see the same credit scores your lender actually uses to evaluate your credit worthiness. But looking on the bright side, at least my client’s driving a new car now!

Posted in Consumer Protection, Credit Bureaus, Credit Repair, Credit Repair Tips, Credit reports, Credit Scams, Fico Scores | 2 Comments

How Should the new Consumer Financial Protection Bureau Regulate Credit Repair Services?

Posted on July 31, 2011 by Reney DuBose

A year ago, the Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted. It created a new Consumer Financial Protection Bureau (the CFPB). The purpose of the new law was to establish a single point of accountability to assure that markets for consumer financial products work for American consumers and for responsible providers of those products. On July 21, 2011 the CFPB officially went to work. Its self defined mission is to serve as “a cop on the beat to enforce the laws on credit cards, mortgages, student loans, prepaid cards, and other kinds of financial products and services”.

In addition, the CFPB will also supervise credit reporting agencies (including Equifax, Experian and TransUnion) as well as credit score developers such as FICO and VantageScore.” As a result, the FCPB is responsible for developing laws and regulations governing the credit reporting and credit scoring industry.

As such, this raises an interesting question- How should the new FCPB regulate credit repair services?

Considering the growing use of credit scores in today’s economy, the substantial degree of errors in credit bureau reports (i.e. over 76% of credit reports contain errors), and the complexities of the current credit disputing process, its no wonder so many frustrated consumers seek help to get results. Unfortunately, oftentimes consumers have turned to unscrupulous credit repair scammers for help. As a result, the entire credit repair industry has suffered a black eye.

However, consumers still genuinely need help from reputable credit repair organizations to successfully navigate the credit dispute process. The Credit Repair Organizations Act, although well intended, is not adequate protection for consumers.

CROA basically lists a set of compliance requirements when providing legal credit repair services. Unfortunately, in practice, it actually impedes the delivery of credit repair services for not only illegitimate credit repair organizations, but creditable service providers as well. For example, CROA doesn’t distinguish between licensed credit attorneys (who are regulated by State Bar Associations) versus the guy who simply puts up a sign on the corner and is instantly in the credit repair business.

They are all tangled up in the same web of skepticism and reproach. The assumption is all credit repair organizations are inherently opposed to the interest of consumers. So regulators tend to focus on creating consumer awareness of the list of CROA prohibitions and requirements as a means of consumer protection. Hence, consumers are repeatedly warned of the evils of scammers and informed that no one can legitimately remove accurate credit information from their credit reports and reminded that they can repair their credit themselves. Consumers know this, but for legitimate reasons, many consumers desire professional help to repair their credit anyway.

However, the Credit Repair Organizations Act fails to address the new reality of the need for legitimate professional credit repair organizations to provide a much needed and valuable service to consumers. It allows for anyone to set up shop and get into the credit repair business. As long as they simply comply with the list of CROA requirements and prohibitions they can be in business.

Well this approach to regulation may not necessarily provide adequate consumer protection against well meaning, but untrained, inexperienced, or unknowledgeable credit repair service providers. The Credit Repair Organizations Act is primarily used by Regulators as a means of policing scam operators. Oftentimes “sting operations” are conducted by the FTC to locate and identify credit repair providers that fail to comply with the requirements and prohibitions listed in CROA.

However, considering the growing significance of credit reporting and use of credit scores, why not regulate the credit repair industry like we regulate mortgage loan originators, Realtors, or appraisers? Why not require certification, registration, or even licensing to weed out the bad apples and inject more accountability into the credit repair industry? Why not impose regulatory hurtles for becoming a credit repair organization up front?

Such regulations could include background checks, a national registry, training, exams, or bonding requirements. Wouldn’t this be a more efficient means of protecting consumers than the current practice of conducting “sting operations” to identify and shut down credit repair scams that violate CROA compliance requirements?

The CFPB should completely overhaul the credit repair industry with new laws and regulations to address the present needs of consumers in the new economy. Consumers do need to be protected from credit repair scams, but the question is how? Now more than ever, consumers need help from legitimate professional credit repair organizations experienced and credible enough to provide it.

Consumers deserve consumer protection laws and regulations with more than a list of do’s and don’ts for providing credit repair services. So hopefully the new CFPB will include an overhaul of the Credit Repair Organizations Act as a part of its agenda. I guess we’ll just have to wait and see…

Posted in Consumer Protection, Credit Bureaus, Credit Repair, Credit Repair Tips, Credit reports, Credit Scams, Fico Scores | Leave a comment

Defaulted Student Loans – It’s Not the End of the World. Or is it…?

Posted on June 27, 2011 by Reney DuBose

When you’re a Mortgage Loan Originator, it may seem like the end of the world to encounter loan applicants with defaulted student loans negatively affecting their credit scores. Many consumers are totally unaware of how to deal with defaulted student loans, so as an MLO it may be beneficial to provide them with some helpful tips regarding what they can do about defaulted student loans reporting on their credit reports.

Defaulted Student loans can be very difficult to deal with because they are not treated as ordinary debts when it comes to debt collection options. Most student loans are not dischargeable in bankruptcy and can remain on a consumer’s credit report indefinitely. Many consumers are surprised to learn that prior to 2005 private student loans were actually dischargeable in bankruptcy. But The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 changed all of that. Now both government and private funded loans are generally not dischargeable in bankruptcy.

Like many consumer advocates, I believe that there is absolutely no justification for private student loans to be exempted from bankruptcy discharge. With the increase in student loan defaults due to unemployment and other issues related to the economy, many consumers will need a bankruptcy solution as a final relief valve for debt overload. Sometimes there’s just no other option.

Well fortunately, last month, U.S. Senator Dick Durben (D-IL), Steve Cohen (D-IL) along with other legislators, joined together to introduce new legislation in both the Senate and the House to treat private student loans in bankruptcy the same as any other private debt.

However, I don’t feel the proposed legislation goes far enough. I believe the legislation should provide bankruptcy discharge for ALL student loans, whether private or Government funded. Given the state of the economy, the failure of Colleges and Universities to prepare students for today’s job market, and the excessive cost of college tuition when compared to students’ earning potential after graduation, many consumers find themselves in a financial dilemma with no way out.

In working with consumers to help legally improve their credit, I constantly see consumers over their head in student loan debt. Many times the amount of student loan debt is as much as 5 to 10 times their annual income.

Most of the consumers have no idea of how to navigate the trebled waters of the current student loan collections process. As a result, they often wind up in “Student Loan Default Hell”. They wrestle with threatening collection calls from Lenders, Servicers, and even Private Collection Agencies collecting on behalf of the Government. Also, if they can’t resolve their student loan problems, many of them may never be able to qualify for mortgage loans to buy homes.

So if you’re a MLO with clients attempting to finance a home mortgage, but challenged with defaulted student loans, it may be helpful to provide them with some information and/or resources to help.

First of all, you should know that generally, student loans are divided into either Government Loans or Private Loans. Private loans are student loans provided from private lenders like banks or credit unions. Government loans are either Direct Student Loans funded by Government entities directly to the students or student loans that are guaranteed by the Government. In which case a private lender will initially provide the funds to the student and the Government will guarantee the payment of the loan and/or other benefits in the event of default or deferment. The most popular type of Government guaranteed loan program is the Federal Family Education Loan Program (FFEL). However, as of June 2010 the FFEL program was completely cancelled.

The reason it’s important to know the various types of student loans, is because there are various remedies available to students depending upon which type of student loan they have. Generally, student loan remedies fall into one of these basic categories:

If a consumer is not sure of what type of Government student loans they have, they can find out at the National Student Loan Data System (NSLDS) website.

There are pros and cons to each category and type of student loan remedy afforded. All of the factors to consider are way too numerous to address in this article, However, here’s a link to probably the best resource of student loan information I have found. It provides a really great step by step guide for developing a plan for dealing with student loan problems.

It also discusses one of the little know credit improvement tips for dealing with defaulted student loans – the Student Loan Rehabilitation program. If a consumer qualifies, after, 9 to 10 months of timely payments, the negative defaulted student loan status is completely deleted from their credit reports. We have used this program to help many of our clients to legally improve their credit and qualify for home mortgage financing.

So although defaulted student loans can be very difficult to deal with, there are a few options available that may help. So it may not be the end of the world after all.

Posted in Credit Repair, Credit Repair Tips, Default student loans | Leave a comment

How to Legally Remove IRS Tax Liens from Your Credit Report

Posted on May 10, 2011 by Reney DuBose

If you’re a mortgage loan originator (MLO) or Realtor, you may want to share this credit improvement tip to help your clients to legally remove IRS tax liens from their credit reports.

A couple of years ago I worked with a client regarding the reporting of an IRS tax lien on his credit report. He was unfortunately saddled with a large an unforeseen tax liability as a consequence of his divorce proceedings.

Following his divorce, the IRS filed a tax lien against him. The lien was then reported by the credit bureaus on his credit reports. So in order to pay the income tax liability, he attempted to get a personal loan from his credit union. However, his credit union wouldn’t approve the loan because of the tax lien showing on his credit reports.

He contacted the IRS and requested a withdrawal of the tax lien to allow him to get a loan to pay the tax liability. However, the IRS agent said they would temporarily withdraw the tax lien only if he could show proof that he had an approved loan. But, the credit union wouldn’t approve the loan unless the tax lien was withdrawn and removed from his credit report. So around and around he went.

Dealing with IRS tax liens can be tricky business. Typically, IRS tax liens can be legally reported on your credit report for up to 7 years from the date of last activity. So if you wait 4 years to repay the tax lien, it can be reported on your credit report for another 7 years after repayment, totaling 11 years.

In some cases, even after repaying the lien, the “release of lien” itself may be filed as a public record and can have a negative impact on your credit scores. So it’s important to take the necessary steps to get all lien information legally removed from your credit report. Prior to February 24, 2011 an IRS tax lien was very difficult to get legally removed from your credit report.

However, it seems the IRS has turned over a new leaf. On February 24, 2011 the IRS announced major changes to their tax lien process to help struggling tax payers to get a fresh start. These new changes include:

• Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
• Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
• Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
• Creating easier access to Installment Agreements for more struggling small businesses.
• Expanding a streamlined Offer in Compromise program to cover more taxpayers.

One of the major benefits of the new changes is that many taxpayers can now get a withdrawal of their tax liens approved by simply entering into a direct debit installment agreement for the delinquent tax liability. That’s right. The tax lien can be withdrawn BEFORE the delinquent tax liability is actually paid off.

Also, the IRS is incorporating an accelerated process for getting the tax liens withdrawn. The key is you have to actually request the withdrawal of the tax lien by filing a request for withdrawal of the tax lien form after you enter into the direct debit installment agreement.

Once the withdrawal of tax lien is approved, all you have to do is draft a credit dispute letter to the credit bureaus and attach a copy of the IRS tax lien withdrawal notice to get the tax lien legally removed from your credit reports.

Posted in Credit Bureaus, Credit Repair, Tax Liens | 1 Comment

Why it’s Not in the Best Interest of the Credit Bureaus to Help Consumers fix Credit Report Errors!

Posted on April 29, 2011 by Reney DuBose

As a Mortgage Loan Originator or Realtor, you obviously want to give your clients good credit advice to fix credit report errors so they can qualify for financing or get the best interest rates possible.

You would think the Big 3 credit bureaus would also be motivated to help consumers to fix credit report errors. It just seems natural that the more consumers with good credit scores the better for everyone.

However, it may surprise you to learn that one of the best kept secrets in the credit reporting industry is that it’s actually NOT in the best financial interest of the credit reporting agencies to fix credit report errors for consumers.

So don’t be so quick to advise consumers that all they have to do is simply send a credit dispute letter to the credit bureaus and their inaccurate credit information will be corrected. It may be more challenging than you think. Consumers may have to fight with the credit bureaus to get results. Here’s why…

Most of you are probably already aware that the credit bureaus make money by collecting consumer credit information and in turn selling credit reports. It’s no secret that the credit reporting industry is big business. After all, the Big 3 credit bureaus are not Government entities, but “for profit” companies that earn over $4 Billion annually.

Although it’s not highly publicized, the credit bureaus also make a great portion of their profits by selling data to marketing companies interested in selling products and services to consumers with certain demographics.

For example, let’s say a local Toyota dealership wants to use direct mail to reach customers that would potentially qualify for their 0% financing program. They may want a list with information on consumers within a 50–mile radius, with a FICO credit score of 750 or higher.

The credit bureaus would then sell a list of such consumers to the Toyota dealer. This results in a “soft inquiry” on the consumers’ credit files. The inquiries are not reflected in the consumers’ credit scores, but they are listed on the consumers’ credit reports as a “marketing” type inquiry.

So here’s a good credit tip for consumers: “Opt–Out” of your credit information being sold to marketers. This helps in the credit repair and credit rebuilding process for a number of reasons, but most importantly – your personal information is kept private. Per the Fair Credit Reporting Act, it cannot legally be sold by the credit bureaus once you’ve opted out. To opt out, go to www.optoutprescreen.com. This will stop the credit bureaus from marketing your data and significantly reduce the amount of junk mail you get as well.

But here’s the most interesting part of the story…Not all Data is Created Equal.

Some data is actually more valuable than others; so the credit bureaus can charge more for it. Let’s take another look at the Toyota dealer example. The consumers in that profile have high credit scores, so they would be eligible for the 0% financing offer. The dealer gets to sell a car, but he doesn’t make any money on the financing. However, if a consumer had poor credit, the dealer could not only sell a car, but he could make money on the financing as well.

As a result, a list of consumers with poor credit is of more value to the dealer than a list of consumers with good credit. Therefore the dealer is willing to pay the credit bureaus more money for a list of consumers with poor credit.

“The worse the credit score—the more money the credit bureaus make!”

So the credit bureaus have no incentive to correct the inaccurate data in a consumer’s credit file. If their credit scores are lower, the credit bureaus make more money. It’s just not in the credit bureaus’ financial best interest to help consumers fix credit report errors. In some ways it’s like the fox is watching the hen house… But no one seems to be watching the fox!

Posted in Credit Bureaus, Credit Repair, Credit reports, Fico Scores | Leave a comment

Many Loan Officers and Realtors are actually giving their Clients Bad Credit Advice!

Posted on April 22, 2011 by Reney DuBose

If you’re a Loan Officer or Realtor, you want to help your clients as much as possible. However, you may be unknowingly giving your clients bad credit advice. Recently, I’ve been speaking with many Realtors and Loan Originators regarding how they handle clients with credit problems preventing them from qualifying for a home mortgage. Most of the Realtors and Lenders indicate they advise their clients to go online to the websites of Experian, Equifax, and Transunion to dispute any inaccurate, incomplete, or outdated credit items being reported.

On the surface this may appear to be a very efficient and convenient way to deal with inaccurate negative credit items listed on their credit reports. However, it’s actually bad credit advice. The credit bureaus designed their online credit dispute system, called eOSCAR, to process consumer credit disputes on their websites. However, there are several reasons why you should never use the credit bureaus’ online dispute system when submitting credit dispute letters.

Many consumers unwittingly believe the credit bureaus offer the online dispute system as a convenience for consumers. However, they are unaware of the fact that when they submit their credit disputes online, they give up certain credit rights. So instead of benefiting the consumers, use of the online credit dispute system actually benefits the credit bureaus at the expense of the consumers.

Instead of submitting credit disputes online, advise your clients to do the following:

Draft credit dispute letters to the credit bureaus listing each inaccurate, incomplete, or outdated negative credit item reported. Indicate the reason for each item disputed.

Be sure to date the letters and include their complete name, address, and birth date. Include a copy of their personal identification (e.g. driver license) and a copy of a utility bill with their current mailing address.

Always send credit dispute letters to the credit bureaus by certified mail and keep a copy for their records.

This is good credit advice that your clients will appreciate. It will help them to preserve their credit rights and legally improve their credit.

Posted in Credit Repair, Credit reports, Fico Scores, mortgages | 1 Comment

Should Employers Conduct Credit Checks on Job Applicants?

Posted on April 13, 2011 by Reney DuBose

While driving down the Florida coast this weekend, my wife and I stopped at a small breakfast cafe in St. Augustine. My wife began her ritual of reading the newspapers left by previous customers, when she saw an article in USA Today entitled
“Credit Checks Used in Hiring”. The article revealed that 60% of U.S. employers conduct credit checks on job applicants, according to the Society for Human Resource Management (SHRM).

As she read the article aloud, I couldn’t help but wonder if using a person’s credit information for hiring decisions was fair. Some argue that, by considering an applicant’s credit report, the employer is making a value judgment. They’re saying “I think you’re an irresponsible and careless person because you have a bad credit report”. But is that necessarily the case? What about individuals that have poor credit reports as a result of unemployment, divorce, or illness? What about those with inaccurate information contained in their credit report? After all, some consumer studies show that over 76% of all credit reports contain errors?

Many privacy rights and civil rights advocates say employers are unfairly using credit histories to weed out the down and out, especially people of color. In one example, an African American woman lost her job after medical bills and debt piled up while she was ill. When her health returned, she found that potential employers looked at her credit report and used it to gauge her “trustworthiness”. This example clearly demonstrates the unfair use of credit reports in hiring practices. Her illness is certainly not a reflection of her trustworthiness.

However, in defense of the use of credit information by employers, SHRM argues that employers use credit reports very judiciously, mostly very late in the hiring process and usually for sensitive management positions.

Well, even if that were the case, does it make a person’s credit report a good measure of their trustworthiness when it’s related to a sensitive management position? Also, such a response seems to imply that if the credit report is used late in the hiring process that it somehow makes it a good measure of trustworthiness at that point. Or that somehow it no longer results in a bias against the down and out or people of color. Even the down and out and people of color have an interest in sensitive management positions- don’t they? Also, whether you’re weeded out early in the process or late in the process, either way, you’re still weeded out.

Although there are currently 49 proposed bills being debated in 25 states regarding the possibility of limiting the use of credit reports for job applicants, I’m not sure if the practice is going to change anytime soon. But who knows, maybe the next time we stop for breakfast we’ll read about favorable changes in the credit laws that limit the use of credit reports for job applicants.

But until then, here’s what you need to know:
Anytime a potential employer pulls your credit report, they are required to comply with the Fair Credit Reporting Act. The Act requires an employer to give you advance notice that they intend to pull your credit report. They have to let you know “conspicuously”. They can’t just slip it in an employment application.

Also it’s important to know that employers see a different credit report than the one a creditor would normally see. For example, your credit scores are not provided and your account numbers are only partially revealed. But they will see any liens, delinquent accounts, charge offs, judgments, or bankruptcy filings.

Steps you can take…

1. Review a copy of your credit report before applying for employment. You’re entitled to get a free copy from each of the Big 3 credit bureaus every 12 months at www.annualcreditreport.com.

2. If you have any inaccurate, outdated, or unverifiable credit items reporting, you have the right to dispute the negative credit items with the credit bureaus and creditors that furnished the information to the credit bureaus.

3. If an employer asks you to sign a consent form to pull your credit report, you can request to know why it’s needed and how your credit information will be used.

4. If you have bad credit and you know the employer will review your credit report, you may want to be up front and explain your situation. This may help to defuse the problem in advance. Some employers are sympathetic to the credit problems candidates face as a result of the economy. They may also appreciate your candor and honesty.

If you’re denied employment or a promotion because of your credit, the employer has to notify you of this fact within 5 days. You then have the right to a free copy of the credit report used to deny you employment. You can obtain a free copy at www.annualcreditreport.com.

Posted in Credit Repair, Fico Scores | Leave a comment

New Credit Scoring Models – Now Your FICO Scores May Not Be Enough!

Posted on April 6, 2011 by Reney DuBose

By now, most people are convinced that credit scores are here to stay. For those not yet convinced, consider all the new credit scoring models that have recently surfaced. Also, consider the fact that now good FICO scores alone may not be enough. Lenders and employers are increasingly using more of your personal information to calculate credit scoring models to make lending and employment decisions.

Up to this point, the FICO credit score was pretty much the primary credit scoring model used by lenders to make credit decisions. But now more and more lenders are using advanced technology to dig deeper into your life to gather personal information to use in making lending decisions. They’re using information like where you live, how you do your banking, and even how often you change jobs. This information is then used to develop new scoring models for employment and lending decisions.

Besides the basic FICO credit scoring model there are now over 100 credit scoring models out there. As a result, it’s confusing to most people. Some individuals responsibly monitor their FICO credit scores only to find that lenders and employers are using a different credit scoring model when performing routine credit and employment background checks.

This was exactly the case with one of our clients who works for the Federal Government. She has to periodically undergo a routine credit and background check. This time she surprisingly learned that her FICO credit scores were completely different from the credit scoring model the Government background investigator showed her. When she called me, I began to explain the different types of credit scoring models to her. She was amazed to learn that the FICO scoring model is not the only one.

These new credit scoring models now consist of more of a person’s credit and employment history than simply pulling their FICO credit score. Although there are new federal regulations going into effect in July of 2011 that require lenders to disclose the reason they deny you credit, there is no requirement to disclose what data or formula was used to calculate the credit scoring model that resulted in a denial. Basically, many of the new credit scoring models are still a mystery.

But here’s what we’ve been able to glean about a few of the new credit scoring models that you may not yet be aware of:

Bank Deposit Behavior Score

This credit scoring model is used to track how you manage your money. It reviews your checking and savings accounts. The actual formula used to calculate this score is still a secret. Some believe that overdrafts will negatively affect the score. Also, believe it or not, if you don’t use direct deposit or your account balance drops drastically every month, your score may decrease.

Job Security Score

A company called ScoreLogix sells a “Job Security Score” to lenders. This score uses your income stability, and hundreds of other economic factors, including your employment, your income, and your zip codes to measure your credit worthiness.

TransUnion’s Credit Optics Plus

Last year TransUnion got into the act with their new credit scoring model called “Credit Optics Plus”. This credit scoring model use factors like your address changes, telephone information among other personal information. So if you move a lot due to employment, this credit scoring model will probably hurt you.

What Can You Do?

Obviously it’s impossible for you to check every single credit scoring model out there. As I said before, there are literally over 100 different types of credit scoring models in use. I still recommend that you regularly monitor the information in your credit files with the credit bureaus and make sure it’s accurate, complete and only contains credit items that are verifiable. Because no matter what credit scoring model is used, they all pull information from your credit files. Also, the credit improvement basics of paying your accounts timely and keeping your balances low still apply.

But beware that creditors and employers are now looking under every nook and cranny to find increasingly more personal information they can use to make lending and employment decisions. The trend is to find newer ways to assess business risk. This means there will be an ongoing “Tug-of-War” between your privacy rights in your personal information and their business interests in your personal information.

So far, it looks like they may be winning…