Bankruptcy And Debts

Considering that mortgage rates can change at 20-point, credit-score intervals, the NCRA-CFA study revealed the importance of knowing your credit score before you apply for credit. The study also tested differences between Equifax s and Trans Union s older and newer FICO scoring models, and found the differences to be negligible. The Phase I comparison discovered another unexplained occurrence: in 10% of the cases, instead of there being three credit reports for each individual (one each for Equifax, Experian and Trans Union), a fourth, or fifth, or even sixth credit report would be returned, most of which had credit scores. consolidation debt mortgage

These reports were not duplicates. In some cases, the extra credit reports clearly were reporting the credit activity of an entirely separate person, as none of the accounts matched with those on the three primary reports. But it was very common for the additional report to contain a mixture of credit data, some of which belonged to the applicant and some of which clearly did not. In still other cases, applicants had split files that appeared to be the result of applying for credit under variations of their name. It was unclear to researchers exactly how various lenders and their systems would interpret these additional credit reports and scores. consolidation debt help

Credit Scores Rule

What is clear is that credit scores are a key factor in credit granting, be it automated or manual decision-making, especially in the all-important home mortgage loan business. To understand why, it is necessary to understand how the mortgage market works. Once a mortgage is approved, mortgage brokers and other originators of home loans generally look to sell them on the secondary market. To do so most profitably, they want to sell these mortgages quickly, and that requires the financial guarantees of Freddie Mac s and Fannie Mae s automated underwriting process (AU).²⁹ consolidation credit debt

As the CFA study put it, In this market, where record volumes of loans are being originated, there is a tremendous incentive to deal only with the loans that will be approved the fastest the loans that pass the credit score / automated underwriting test. bill consolidation debt

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The FICO score is one of 15 factors set by Fannie s and Freddie s automated underwriting systems. It Was Different Before Of course, it did not start out this way. Freddie Mac, in a 1995 letter to mortgage lenders, described FICO scores as only one of the selection factors in our quality control sampling procedures. This, of course, was before Automated Underwriting took off. consolidation debt quote

After reviewing a number of alternatives, we determined that, within the manual underwriting process, one of the easiest and most readily available tools to assist you in managing the challenging credit-risk environment is the use of either FICO bureau or MDS bankruptcy scores. Using these scores can help you better assess and manage the quality of your loan originations, reduce servicing costs and sustain profitability, Freddie Mac continued. consolidation debt lead

The 1995 Freddie Mac letter virtually closed out what now seems like a quaint era in which human judgment was required, and numbers weren t everything. The letter continued: We want to emphasize that there is no single FICO bureau or MDS bankruptcy score that means an individual borrower will default. However, these scores can help you identify loans that may require a closer look by your underwriter. If your underwriter is able to establish the borrower s willingness to repay as agreed, then we encourage you to consider this is in your investment-quality decision, regardless of what the credit score alone might suggest. Remember that you are still responsible for underwriting the credit reputation, as well as the file as a whole, to make your investment-quality decision. consolidation debt non profit

In the years following this letter, advances in information technology, coupled with Freddie Mac s and Fannie Mae s satisfaction with FICO scores, allowed automated underwriting to take off. This coincided with falling interest rates and resulted in tremendous growth in both home sales and mortgage refinancing, benefiting millions of consumers and the economy as a whole. consolidation debt loan online

In the meantime, the FICO score had emerged as the most important, and at times, the only determinant in the credit granting process. Reason Codes The FICO models most commonly in use offer several dozen Reason Codes as to why your FICO score is less than perfect. (See listing on pages 43-44.) As you look over these codes, keep in mind that some of these codes should not be acted upon, as they do not represent stand-alone categories, but are scored against the broader credit history. In fact, under the newer scoring models, there is one code for too few bank revolving accounts and another code for too many bank or national revolving accounts. consolidation debt home loan

Also, under the new models, the number of scoring factors or reason codes has expanded. In addition, the three major credit bureaus scoring models generally can produce special messages after a credit report is analyzed. Below are some examples of so-called Scoreability criteria from TU s old Empirica model: christian consolidation debt

• Not Scored

  Insufficient credit; when a credit files does not contain a tradeline opened for at least six months and a tradeline updated within the last six months; consolidation debt information

• Not Scored

  Deceased; when the subject s Social Security number matches the Social Security Administration s deceased SSN file. agency consolidation debt

• Alert

  When a credit file contains one or more of the following previous bankruptcy, derogatory public record, collection activity, or an MOP of seven or higher. consolidation debt solution

Credit Bureaus Unless Equifax TransUnion Experian Reason Statement Other

Beacon^SM Empirica^SM FICO-II^SM Amount owed on accounts is too high 01 - - A/ Level of Delinquency on accounts 02 - - B/ Too few bank revolving accounts 03 - - C/ Proportion of loan balances to loan amounts is too high 03 - - I/33 Too many bank or national revolving accounts 04 - - D/ Lack of recent installment loan information 04 - - Y/32 california consolidation debt

Too many accounts with balances 05 - - E/ Too many consumer finance company accounts 06 - - F/ Account payment history is too new to rate 07 - - G/ Too many inquires last 12 months 08 - - H/ Too many accounts recently opened 09 - - J/ Proportion of balance to credit limits is too high on bank revolving and other revolving accounts 10 - - K/ Amount owed on revolving accounts is too high 11 - - L/ Length of time revolving accounts have been established 12 - - M/ consolidation debt loan uk

Time since delinquency too recent or unknown 13 - - N/ Length of time accounts have been established 14 - - O/ Lack of recent bank revolving information 15 - - P/ Lack of recent revolving account information 16 - - Q/1 No recent non-mortgage balance information 17 - - R/ Number of accounts with delinquency 18 - - S/ Too few accounts currently paid as agreed 19 - - T/ Date of last inquiry too recent 19 - - - consolidation debt equity home

Time since derogatory public record or collection too short 20 - - V/ Amount past due on accounts 21 - - W/1 Serious delinquency, derogatory public record, or collection 22 - - X/* Number of bank or national revolving accts with balances 23 - - - No recent revolving balances 24 - - U/1 Length of time installment loans have been established 25 - - I/0 Number of revolving accounts 26 - - I/0 Number of bank or other revolving accounts 26 - - I/0 consolidation debt government

Secret Data

Important aspects of the system remain a secret. Sources have told this author there are raw data in credit reports - regularly scored by FICO scoring models - that are never seen by consumers because these data do not appear on their credit reports. These raw data show up on machine readable credit reports used by lenders and their scoring models, but not on the more familiar reports disclosed to consumers.

For example, one major credit bureau has one code to denote the most recent negative item; a second code marking the previous most recent negative item, and a third code denoting the most recent, worst negative that is more than 24 months old. If consumers are to become more educated about their credit reports and credit scores, shouldn t this kind of information be disclosed as well consolidation debt firm

Generation Gap

In late 2001, Fair Isaac announced the rollout of its Next Generation scoring models with some fanfare. Fair Isaac s Karlene Bowen predicted before the National Credit Reporting Association that the new NextGen model bring more precision and would rapidly be adopted by banks and mortgage lenders in 2002.³¹ Bowen said the key to the Next Generation score was that it used complex statistical models to see through credit file data to better identify loan applicants who represented the highest risks of delinquency or foreclosure. Based on new analyses of tens of millions of consumer credit files, the Next Generation scores reward some people -- moving them into the heretofore rarefied 800 and higher score category. But it also pushed other people below the 600 level that often triggers higher interest rates and fees.³¹ consolidation debt financing

The ranges changed as well. While 800 might be rare under FICO classic because the top score was 850, under NextGen, the top score is now 950 - and the default rate classes are probably adjusted as well. Fair Isaac s Craig Watts indicated for many consumers, the change would not be that great. NextGen scores correlate to classic FICO scores, so a score of 620 from either model indicates the same likelihood the consumer will become seriously delinquent within 24 months, he said. consolidation consumer credit

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Kenneth Harney, Higher Credit Scores On the Horizon, Realty Times, November 12, 2001 ³¹ Id. But lenders for the most part have not adopted Next Generation. Fair Isaac attributed their reticence to the cost of integrating new software. But another important factor is that Fannie and Freddie have not endorsed it. Until they do, don t expect many others to. It took six years for Fannie and Freddie to endorse FICO classic after its unveiling in 1989. There s no telling if and when the two influential mortgage organizations will recognize NextGen in the same way. consolidation debt free quote

This means that there will continue to be a pronounced lack of uniformity in the market, which, at a minimum, will generate confusion for consumers trying to understand their actual status in the credit-scoring hierarchy. card consolidation counseling

Where Do We Stand

There appears to be a discrepancy in how Fair Isaac and Experian rate the creditworthiness of the U.S. population. Fair Isaac said as of early 2004, this was how U.S. consumers FICO scores were distributed nationally: consolidation debt lender

• 800 or higher - 11 percent calculator consolidation debt

• 750-799 - 28 percent best consolidation debt loan

• 700-749 - 19 percent consolidation counseling

• 650-699 - 16 percent best consolidation debt

• 600-649 - 12 percent best company consolidation

• 550-599 - 8 percent consolidation debt lending

• 500-549 - 5 percent business consolidation debt

• 499 and under - 1 percent³² advice consolidation debt

If Fair Isaac s estimates are accurate, then nearly 60 percent of U.S. consumers are qualifying for top-notch credit, with credit scores of 700 or above. However, in March 2004, Experian rated the nation according to its PLUS score, which uses a range similar to the FICO model. However, the PLUS Score was not used by lenders, sources said. consolidation debt interest

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Fair Isaac Corp., National Distribution of FICO Scores; (Slide) Still, Experian claimed its survey used the most up-to-date information, and found that the average PLUS credit score was 678. Moreover, it gave the following regional breakdown: consolidation debt refinance

• New England - 699 consolidation debt finance

• West North Central - 695 consolidation debt plan

• Mid-Atlantic - 690 consolidation debt personal

• East North Central - 684 consolidation debt management

• East South Central - 677 consolidation debt secured

• South Atlantic - 675 consolidation debt florida

• Pacific - 674 canada consolidation debt loan

• Mountain - 670 consolidation debt nonprofit

• West South Central - 656³³ consolidation debt reduction

It was worth noting that New Englanders had the most credit card and installment debt (per capita, $13, 566)³⁴, had the most credit cards, had the highest minimum monthly payments ($575) and the most credit usage, according to Experian. But they had the fewest late payments. calculator card consolidation

The West South Central, on the other hand, had the lowest per capita debt ($9, 297), but the most late payments. Who Knows One key question is whether the credit-scoring system so lacks in transparency, fairness or reliability that a stronger public policy is needed to protect consumers. Because Congress dedicated much of 2003 to a major updating of the Fair Credit Reporting Act, and because the FTC and federal banking agencies continued working into 2005 to establish new enforcement rules and guidance, it was not seen as likely that Congress would have the appetite for revisiting credit-scoring issues anytime soon. consolidation debt unsecured

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www.nationalscore.com/USScore.aspx, click on View All Graphs. ³⁴ Excluding real estate/mortgage loans Thus, despite any problems with the current credit-scoring and credit-reporting systems, it appears that they are here to stay. Many of the changes passed by Congress, coupled with the financial industry s response to them, should help make the system more transparent and fair to consumers. But as much of this book should make clear, there s a long way to go. A primary goal of this book is to narrow the knowledge gap so consumers can gain an in-depth understanding of how these all-important systems work and what consumers can do to improve their lot. consolidation debt free loan

Does Credit Scoring Really Work

In the 2002 NCRA-CFA study, which was one of few known independent research efforts on credit scoring validity, the authors noted the lack of non-industry assessment of credit-scoring methods. Despite the gatekeeper role that these scoring systems play regarding access to credit, housing, insurance, utilities, and employment, as well as pricing for those essentials, exactly how the formulas perform the transformation from credit report to credit score is a closely guarded secret. For consumers, regulators, and even industry participants who rely on the computations in their decision-making, the scoring models largely remain a black box. No scholarly reviews of this extremely powerful market force have been permitted, and apart from reviews by federal banking regulators to protect against discrimination, no government regulator has insisted that they be examined to ensure that they are adequate and fair. consolidation debt high loan

Stephen L. Ross and John Yinger, both professors of economics at Univ. of Connecticut and Syracuse Univ., respectively, made a similar observation in their 2002 book, The Color of Credit: No existing credit-scoring scheme, let alone a fully automated underwriting system, has been subjected to the scrutiny of disinterested scholars. There is a significant literature (reviewed in Thomas, 2000) on the technical dimensions of credit scoring, that is, on the best method for devising a credit score. As Thomas points out, however, comparisons [a-cross methods] by academics are often limited as some of the most significant data like the credit bureau reports are too sensitive or too expensive to be passed to them by users. As a result, the accuracy of credit-scoring schemes remains an open question.³⁵ consolidation debt free help

Fair Isaac said it s never really been a factory for white papers, a reference to the lengthy, seldom read research papers that some technology companies are known to churn out. ³⁵ Stephen L. Ross John Yinger, The Color Of Credit (MIT 2003); the passage refers to Lyn C. Thomas, A Survey of Credit and Behavioral Scoring: Forecasting Financial Risk of Lending to Consumers, International Journal of Forecasting, 16(2) (April-June): 149-172. consolidation debt ohio

But Fair Isaac is confident that its system helps lenders improve their decision-making, and that it s an overall plus for consumers and for the economy. Most important, Fair Isaac said that its scoring model has been tested over and over in the market by nearly every creditor in the country, and has passed with flying colors, as demonstrated by the company s chart on page 49. One dissenting voice was Golden West Financial s Herb Sandler, who with his wife, ran one of the most profitable mortgage lenders in America. Sandler told Forbes Magazine that Golden West, based in Oakland, California, doesn t use or trust FICO scores. He said the models were too dependent on borrowing histories accumulated during a relatively benign economy with strong housing prices. Golden West s bad loan rate was just 0.5% of assets compared with 0.7% for the thrift industry, Forbes reported March 1, 2004. advice consolidation debt free

Obviously we re doing something right, Sandler said. Other lenders said that Golden West has a special situation, as it specialized in short-term adjustable rate mortgage loans, and had more face-to-face contact with its clientele. One thing that Fair Isaac is crystal clear on: All of its models rely exclusively on information in consumers credit reports when calculating credit scores. That is why to gain a full understanding of how the credit scoring system works, one needs to examine the source: the credit reporting system. With the exception of the next chapter, which explores the role of resellers and their position in the system, the balance of this book is devoted to an examination of the credit reporting system and how credit reports are used, and at times, misused. consolidation debt free online

Veracity - How Does Rapid ReScore Work

- Old Saying When it comes to new mortgages or refinancing, there is a cost-effective, professional service available to improve your credit score in a way that could very well save you thousands of dollars by getting you a better interest rate. It s called Re-Scoring, but hardly anybody knows about it.³⁶ How could that be Re-scoring is offered by the smaller, independent credit bureaus, sometimes referred to as resellers. But the contracts these resellers have with Equifax, Experian, and Trans Union prohibit them from offering their services directly to consumers. In other words, if you call a reseller, they can t help you no matter how much you d be willing to pay them. If that seems like a restraint on trade, you may be right. An anti-trust lawsuit is pending (more on this later). consolidation debt new york

Meanwhile, to use a reseller, you have to abide by a kind of food chain, meeting the following three conditions set by the contracts issued by the Big Three CRAs: ³⁶ Like many other topics related to mortgage credit reporting, Kenneth Harney of the Washington Post is one of the few to write about re-scoring. See Harney s two articles, Bad FICO Mark Re-score Your Credit. Washington Post, July 14, 2001, pg. H1; and Credit Re-scoring: How To Know If It s For You, July 21, 2001; pg. H1. consolidation debt student

1. You have to be a prospective customer of a lender or mortgage broker consolidate consolidation debt

2. That lender or broker must be a customer of the reseller consolidation debt lo

3. The mortgage broker must request the reseller s help on your behalf. card christian consolidation

Take Time Out

The lender or mortgage broker is under no obligation to tell you that it uses a reseller that could improve your score. If the lender or broker is most concerned with speedy approval, and feels that using a reseller would slow down the mortgage-granting process, then they are not likely to tell you about re-scoring. For some lenders and brokers, the worse the credit score, the higher the interest rate, the larger the loan, the bigger the commission. If you, the customer, are in a hurry and don t know about re-scoring, what you don t know could cost you, and your haste makes waste. By the way, only a fraction of lenders or brokers use resellers. by consolidation debt

The re-scoring system was created because of pressure on the Big Three CRAs from the mortgage granting industry. This happened for two basic reasons. First, the mortgage industry saw that credit report errors were hampering mortgage granting, sometimes causing unjust rejection of applicants. Often, delays were caused and expenditure of extra time and effort was necessary to correct mistakes so a loan could be approved. Second, as the industry moved towards automated underwriting, and loan approval was reduced from months to days-sometimes to hours or minutes-virtually nobody was willing to wait the 30 to 45 days it took to correct credit report errors. consolidation debt uk

The re-scoring contracts give re-sellers special privileges that allow them to review credit reports and, within a day or so, submit corrections or other changes to a dedicated desk at the CRA. Because the changes are made directly to the Big Three CRAs, the consumer s amended credit report can be pulled and verified by Fannie Mae, Freddie Mac or other loan guarantors. consolidation debt mortgage

In general, the process is rather simple. consolidation debt help

1. The lender or broker forwards the file of a potential re-scoring candidate to the reseller. The reseller reviews that candidate s credit report and advises the lender/broker whether re-scoring will result in enough improvement to make it worth it. Unless the credit report is a overrun by derogatories, it s usually worth it, as sometimes just improving a few points will qualify the borrower for a better rate. consolidation credit debt

• The reseller identifies a strategy for changing or correcting the report so the score will be improved. bill consolidation debt

• Because the strategy involves actions that the borrower must take, like paying down debt or obtaining documentation from creditors, the reseller prepares a set of recommendations based on the contents of the credit file, the goal score, and the borrower s situation, and sends instructions to the borrower, through the loan officer. consolidation debt quote

• The borrower follows the recommendations, obtains proof of the changes from their creditors (including collection agencies or courts if applicable), and supplies the documentation proving the changes to their loan officer. consolidation debt lead

• The loan officer forwards the documentation to the reseller, who then verifies the documentation is legitimate and forwards the documentation to the re-score desk at the CRA(s) selected by the reseller or determined by the loan program. consolidation debt non profit

• The reseller confirms that the changes have been made at the CRAs and that the credit report containing the amended data is now available to the lender and loan guarantors like Freddie and Fannie. consolidation debt loan online

In most cases, the new score will be improved by the amended data. It is important to remember that during the re-score process, other creditors may issue reports to the bureaus changing the data in trades other than the trades selected for re-score. If the change is negative it could possibly cancel out or event reduce any increase the file may have gained from the changes put through by re-scoring work. In a few cases, it may cause a reduction greater than the increase, resulting in a drop in the score. Because of this, and the black box of secret algorithms and calculations, there can never be a guaranteed increase. consolidation debt home loan

Depending on how much work needs to be done on the credit report, the cost of this process usually ranges from $150-$300, but can run over $1, 000 in dramatic cases. Under Equifax s contract, resellers are not allowed to pass through costs to the borrower. This means that the mortgage broker or lender has to eat the costs. Clearly this might dissuade the broker or lender from making it known to their applicant that the service is available, even if their borrowers are perfect candidates for the process, and despite the fact that any borrowers could benefit greatly from reduction in their interest rate. christian consolidation debt

A reputable reseller, like Lenders Credit Services, Inc. (LCSI), in Baltimore, Maryland, will carefully screen a borrower s history and only attempt to re-score those for whom success is likely. But the results can be impressive. LCSI re-scores the credit reports of an average of 25 borrowers per week. The company estimates the results as follows: consolidation debt information

• On average, the score improves 30 points. This is significant because the mortgage rates generally improve at 20-point FICO intervals. agency consolidation debt

• About 1-2 cases a week improve 50 points. consolidation debt solution

• About 1-2 cases a week improve 70 points. california consolidation debt

• About 3 cases a month improve 100 points. consolidation debt loan uk

• About 2 cases a week cannot be improved. consolidation debt equity home

The extent of the savings can depend on your starting FICO score, but they can add up quickly. According to Fair Isaac, for the average $150, 000, 30-year, fixed-rate mortgage, someone with a 674 FICO score would have monthly payments of $1, 028, while someone with a 700 FICO score would pay $862 per month. That s a savings of $166 per month, or $1, 992 per year.³⁷ consolidation debt government

The two most common ways of improving a score are by (a) correcting mistakes, like late payments or outdated balances that make the borrower appear more in debt than he really is, and (b) by manipulating debt, either by paying down the amount owed on credit cards (revolving debt), or redistributing debt so it s at least below 50% of the credit limit on each revolving account and as a total of all accounts. consolidation debt firm

Here are the seven most common reasons to re-score a credit file, and some of the actions the reseller, working with the borrower, must take for each item.³⁸ Clearly the following is useful for anyone who doesn t have access to a reseller and wants to do it on his own. But here s something you ll want to remember: resellers cannot affect changes to accounts that are already in dispute with the CRA by the consumer. The CRAs also won t allow a reseller to effect changes due to a mixed file, that is when a file appears to include identification data on more than one consumer.³⁹ (Resellers are permitted to change a balance or remove a late date that is incorrect, not a trade that doesn t belong to the consumer, if the evidence is present that the file is mixed. ) consolidation debt financing

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www.myfico.com, visited March 9, 2004 ³⁸ The seven points were provided by Ruth Koontz and Paul Wohkittel of Lenders Credit Services Inc. This author signed an agreement with (LCSI) confirming that I was not shown, and did not see, any confidential consumer data. consolidation consumer credit

1. Payment history is incorrect.

   Letter from creditor, on creditor s letterhead, stating what the correct history should be, or a Universal Data Correction (UDC) form (a standard form used by most creditors reporting information to the CRAs) completed and signed by the creditor. consolidation debt free quote

• Account reports a delinquency that has been brought current or can be brought current.

  Letter from creditor (all such letters should be on letterhead) stating that the account is now current, and/or with a correct lesser balance, or a UDC form completed and signed by the creditor. card consolidation counseling

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