Tag Archives: credit reports

This is Good Karma

Of all the confusing topics in personal finance, credit scores (a number that represents the cumulative health of your credit) and credit reports (the report that compiles your personal credit history) have to be near the top of the list. Not only are there three different credit bureaus (Equifax, Transunion, and Experian) that each report information a little differently, but each bureau also calculates a FICO score that is likely different for each of the bureaus.

Your FICO score is called a FICO score because it is calculated using software from Fair Isaac and Company. This model is the predominant scoring method in the industry at the moment and many banks use a version of FICO to make lending decisions. However, since each bureau may collect a different combination of credit information, and because they each have their own formula for how to calculate the score, the three scores are rarely the same.

In addition, each bureau calls its FICO score something different: Equifax uses the Beacon score, Transunion calls theirs an Empirica score, and Experian simply calls their score the Experian/Fair Isaac Risk Model.

As if that wasn’t bad enough, the three bureaus don’t appreciate the stranglehold Fair Isaac has on the industry so they each have their own proprietary scores and in 2006 they collaborated to create a score called the VantageScore to compete with the FICO.

Finally, the bureaus want you to pay for their scores. These scores can vary significantly, it may be difficult to really gauge the health of one’s credit, and the score you pay for may not even be the score a bank uses to determine creditworthiness.

So, what’s the good news?

One of these bureaus has finally decided to create a FREE tool consumers can use to monitor and track their credit history and score over time. creditkarma.com is a service that tracks your score and credit report changes for free. The site provides daily updates to your TransRisk score (Transunion’s proprietary model), VantageScore, and Auto Insurance Score (score used by insurance companies to gauge one’s insurance risk).

I highly recommend checking out this website. Not only do they provide free score updates, but they also show changes in balances, risk ratings, and other alerts so it becomes much easier to understand how a credit score moves over time. And even though there are a myriad of different scores out there, consistently tracking one score can be useful and can also be very helpful when determining the best time to apply for a new loan. I use their free App on my iPhone and also access their website from my desktop.

Considering how difficult credit can be to manage, it is refreshing to see Transunion create a service that makes the whole process easier.

If your odds were 1 in 30 How Daring Would you Be?

There is a 1 in 30 chance that you were a victim of identity theft in 2008. In addition, there is a 1 in 10 chance that you’ve already been a victim of ID theft at some point in your life. There are some other eye-opening statistics at the bottom of this post that I borrowed from spendonlife.com. It seems like identity theft is happening more and more often to more and more people. And, the thieves appear to be getting more and more creative.

I don’t want to bog you down with piles of numbers but here a few key statistics to help lay some groundwork. There are 307 million people and 232.4 million adults in America according to the 2009 US Census. Of those, (according to Javelin Strategy and Research) 50.2 million are using a credit monitoring service to keep track of their credit history. That leaves 182.2 million US adults who are NOT monitoring their credit. And finally, 10 million people were victimized by identity theft in 2008. There are too many numbers to really break down in one blog post, but my one overriding thought is that there are too many unassuming people out there who do not appear to be adequately protected.

The assumption I take away from this is that people look at ID theft protection as just another form of (unwanted and unnecessary) insurance. I know there are people who don’t necessarily think they need insurance and assume it’s a waste of money UNTIL they have a loss. Then, they’re true believers and wouldn’t ever be caught dead without it.

At the Bank, we offer identity theft protection. There are various levels of protection that can be relatively inexpensive. However, it is one of the products almost no one ever uses. Why is this? Do people not see value in identity theft protection? Is identity theft something that people don’t see as an imminent threat? OR, is there another avenue for identity theft protection (i.e. through a homeowners insurance policy) that provides better value? Given the statistics below that demonstrate the enormous cost to victims of ID theft (both time and money), the cost of protection seems like money well spent.

I would love some feedback on this topic so feel free to comment and let me know what you think about identity theft and people’s general response to it. If you’re bored by the topic feel free to let me know that as well, or throw out some other suggestions.

Thanks for reading.

IDENTITY THEFT STATISTICS (courtesy of spendonlife.com)

Victims
• There were 10 million victims of identity theft in 2008 in the United States (Javelin Strategy and Research, 2009).
• 1 in every 10 U.S. consumers has already been victimized by identity theft (Javelin Strategy and Research, 2009).
• 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised) (U.S. Department of Justice, 2005).
• Those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000 (U.S. DOJ, 2005).
• 7% of identity theft victims had their information stolen to commit medical identity theft.

Discovery
• 38-48% discover someone has stolen their identity within three months, while 9-18% of victims don’t learn that their identity has been stolen for four or more years (Identity Theft Resource Center Aftermath Study, 2004).
• 50.2 million Americans were using a credit monitoring service as of September 2008 (Javelin Strategy and Research, 2009).
• 44% of consumers view their credit reports using AnnualCreditReport.com. One in seven consumers receive their credit report via a credit monitoring service. (Javelin Strategy and Research, 2009).

Recovery
• It can take up to 5,840 hours (the equivalent of working a full-time job for two years) to correct the damage from ID theft, depending on the severity of the case (ITRC Aftermath Study, 2004).
• The average victim spends 330 hours repairing the damage (ITRC Aftermath Study, 2004).
• It takes 26-32% of victims between 4 and 6 months to straighten out problems caused by identity theft; 11-23% of victims spend 7 months to a year resolving their cases (ITRC Aftermath Study, 2004).
• 25.9 million Americans carry identity theft insurance (as of September 2008, from Javelin Strategy and Research, 2009).
• After suffering identity theft, 46% of victims installed antivirus, anti-spyware, or a firewall on their computer. 23% switched their primary bank or credit union, and 22% switched credit card companies (Javelin Strategy and Research, 2009).
• Victims of ID theft must contact multiple agencies to resolve the fraud: 66% interact with financial institutions; 40% contact credit bureaus; 35% seek help from law enforcement; 22% deal with debt collectors; 20% work with identity theft assistant services; and 13% contact the Federal Trade Commission (Javelin Strategy and Research, 2009).

Costs
• In 2008, existing account fraud in the U.S. totaled $31 billion (Javelin Strategy and Research, 2009).
• Businesses across the world lose $221 billion a year due to identity theft (Aberdeen Group).
• On average, victims lose between $851 and $1,378 out-of-pocket trying to resolve identity theft (ITRC Aftermath Study, 2004).
• The mean cost per victim is $500 (Javelin Strategy and Research, 2009).
• 47% of victims encounter problems qualifying for a new loan (ITRC Aftermath Study, 2004).
• 70% of victims have difficulty removing negative information that resulted from identity theft from their credit reports (ITRC Aftermath Study, 2004).
• Dollar amount lost per household averaged $1,620 (U.S. DOJ, 2005).

Perpetrators
• 43% of victims knew the perpetrator (ITRC Aftermath Study, 2004).
• In cases of child identity theft, the most common perpetrator is the child’s parent (ITRC Aftermath Study, 2004).

Methods
• Stolen wallets and physical paperwork accounts for almost half (43%) of all identity theft (Javelin Strategy and Research, 2009).
• Online methods accounted for only 11% (Javelin Strategy and Research, 2009).
• 38% of ID theft victims had their debit or credit card number stolen (Javelin Strategy and Research, 2009).
• 37% of ID theft victims had their Social Security number stolen (Javelin Strategy and Research, 2009).
• 36% of ID theft victims had their name and phone number compromised (Javelin Strategy and Research, 2009).
• 24% of ID theft victims had their financial account numbers compromised (Javelin Strategy and Research, 2009).
• More than 35 million data records were compromised in corporate and government data breaches in 2008 (ITRC).
• 59% of new account fraud that occurred in 2008 involved opening up a new credit card and store-branded credit card accounts (Javelin Strategy and Research, 2009).

Credit 101: The Rest of the Story…

On June 23, I posted the first half of an entry on personal credit and credit scores.  Here is the second half of that entry.

 

Never take your personal credit for granted.  Even if you pay your bills on time or don’t borrow money, it is in your best interest to keep track of your credit report to make sure you don’t get surprised by identity thieves or by incorrectly reported information.  The sooner you identify issues, the sooner they can be fixed.

Only hard inquiries affect your credit score.  There are two types of inquiries of your credit report.  Hard inquiries are credit searches completed when you apply for a loan.  Soft inquiries include things like pre-screened offers by credit card companies and inquiries by you, the consumer.  In other words, monitoring your own credit will not hurt your credit score.

Payments on a home or business loan can be significantly affected by your credit score.  For example, First National Bank of Pandora offers a 30 year fixed rate home loan.  The best posted rate today was 4.625%.  Depending on your personal credit score and several other factors, the rate may be higher than this best rate.  For the sake of comparison, imagine a $100,000 loan for 30 years at 4.625% and an identical loan at 6.00%.  Over 30 years you could save approximately $30,748 if your credit score justifies the lower rate. 

Quantity in your credit history is not as important as quality.  You do not need to have a lot of credit to build a good credit score.  Managing the credit you have—regardless of quantity—will eventually lead to good credit.

Research your options before you commit to a banking product or service.  Advertised rates and promotions at financial institutions often target customers with the highest credit scores.  If your credit score needs improvement, make sure you are getting a rate and terms you can live with.  This is where knowing and trusting your banker makes all the difference.  If you know who you’re dealing with and can trust him or her, you should be able to count on getting a quality product at a competitive and fair price.

Stay away from unfamiliar companies that over promise and advertise deals that are too good to be true.  Just like many other industries, if a deal sounds too good to be true, it probably is.

Time heals all wounds.  Even though information may remain on your credit report for a significant period of time (up to 7-10 years depending on the type of account), negative information will not permanently hurt your credit score.  The more time that passes from a negative event or late payment, the smaller the impact on your credit score.  Even a bankruptcy or a tax lien will disappear after a certain number of years.  The key is to keeping making progress and avoid repeating mistakes made in the past.

Understand that banks are not the only companies that use credit scores and your credit history to evaluate you.  Insurance companies use an insurance bureau score based on information found in your credit report to help them determine your risk as an insured.  Many employers also use credit reports and credit data to identify red flags for potential employees.

Verify that the debts you do have are showing up on your credit report.  There are companies that make loans that do not report to the credit bureaus.  In this case, even if you borrow money and make payments on time you will not get credit for it.  If you’re trying to build or rebuild your credit, make sure your credit report is accurately reflecting the progress you’re making.

Watch your due dates.  Late payments will not show up on your credit report until your account is 30 days past due.  However, if you are past due at all, a creditor may charge a late fee, increase your rate, or assess some other sort of penalty.  Make sure you understand the terms of each of your debts.

eXpect (sorry, this was the best I could do) to make loan payments if you co-sign a loan for someone.  Banks will often lend money to borrowers who may not fit normal lending guidelines as long as a qualified co-signer also agrees to be obligated on the loan.  Not only will the bank expect you to make payments if the primary borrowers falls behind, but the late payments will also show up on your credit report as a missed payment by you.

Young people should start to think about credit before they need to use it.  It is never too early to start learning about credit.  If young people understand the ins and outs of credit before they need a loan, it will be much easier to make smart decisions and build good credit once a loan becomes necessary.

Zeroes on a credit report are almost always a positive sign.  It either means you have paid a loan off or you have a $0 balance on a credit card or line of credit.  In any case, aiming for Zero is not a bad strategy in the world of managing your credit and improving your credit score.

Hopefully, these two entries on credit have been informative and at least a little entertaining.  Feel free to respond or comment with any questions you may have. 

FDIC 

Credit 101: Where to Start?

When I try to sit back and see banking from the perspective of someone who doesn’t spend every day “thinking” banking, there are very few things that seem more confusing than credit reports and credit scores.  Reading a credit report is something I do almost every day and there are still times when I’m left scratching my head.

Since I do quite a bit of reading on this topic and still have trouble finding definitive and helpful answers in one place, I’ve attempted to collect and organize them in a way that is truly informative and useful.  So, from A-Z, your alphabetized list of credit answers:

A credit score is what, exactly:  a credit score is a snapshot of your credit health and is an indication of how you manage your debt.

Basic histories of all of your debts and payments are contained within a credit report.

Credit Bureaus are the companies that gather, organize, and publish your personal credit data.  There are three main credit bureaus: Equifax, Transunion, and Experian.

Data is automatically transmitted by banks, finance companies, and other lenders to one or all of the three bureaus.  The three bureaus take the data and analyze it to create your credit history and credit score.

Every person does not have a credit score.  Credit scores measure how you handle your debt and payments, so if you do not have personal debt—i.e. credit card, car loan, home mortgage, student loans, etc.—you will not have a credit score.

FICO scores are credit bureau risk scores produced from models developed by Fair Isaac Corporation, the most well known scoring model.  Most lenders use a FICO based score when evaluating your requests for credit.

Good credit is a subjective and a moving target, but it usually means a credit score somewhere at or above 700.  Credit scores (based on the FICO model) range from 300-850 but 60% of consumers’ scores fit within a range from 650-799, according to myFICO.com.

How many different factors help determine a credit score, and how important are they?  The graph below shows the five main categories and their respective importance to your score.

Payment history: 35%, Amounts owed: 30%, Length of credit history: 15%, New credit: 10%, Types of credit used: 10%

(courtesy of myFICO.com)

Is there one quick way to improve a credit score?  Actually no, but there lots of little things you can do to improve your credit over time including paying your bills on time, keeping balances low on credit cards, resisting the urge to open new accounts just to accumulate available credit, and many more.  See here for a more comprehensive list of ideas.

Judgments, bankruptcies, collections, and tax liens all show up on credit reports and can have lasting effects on a credit score.  Even after they are paid in full or discharged, these types of occurrences may stay on a credit report for 7-10 years.

Keep a close watch on where you get your credit report and score.  There are countless companies out there advertising their “credit scores”, but they may not be using a FICO score and they may not be accurately portraying your true credit health.  Even more importantly, watch out for unscrupulous companies who are just looking to gather your personal financial information for their own purposes.  See letter ‘M’ below for a reputable resource and see the helpful table below for the name each reputable credit bureau gives to their FICO score.

Credit Reporting Agency FICO Score
Equifax BEACON® Score
Experian Experian/Fair Isaac Risk Model
TransUnion EMPIRICA®

 Lenders use credit scores and reports as part of the loan application process, but they are not the only factors taken into consideration.   The rest of your financial picture plays a major role in the evaluation of a request for credit.

Monitor your credit report and score by visiting annualcreditreport.com.  This site is government sponsored and is managed collectively by the three major bureaus to provide you free access to your report.  You are entitled to a free report from each bureau once every year.  Helpful tip #1: the report is free but you have to pay a nominal fee (approximately $5 apiece) to get your FICO score from each bureau.  Helpful tip #2: you can access all three reports at once or you can order each report separately at different times during the year so that you have more regular access to your credit history.

 Now you’ve made it to the midway point in my list.  Check back soon for the rest of the story.

FDIC