Major Changes Coming To How Your Credit Score Is Calculated

By Ken Sweet, AP Business Writer

NEW YORK – The math behind your credit score is getting an overhaul, with changes big enough that they might alter the behavior of both cautious spenders as well as riskier borrowers.

Most notably for those with high scores: Abiding by the golden rule of “don’t close your credit card accounts” may now hurt your standing. On the other side, those with low scores may benefit from removal of civil judgments, medical debts and tax liens as factors.

Beyond determining whether someone gets approved for a credit card, a credit score can affect what interest rate and what spending limit are offered.

The new method is being implemented later this year by VantageScore, a company created by the credit bureaus Experian, TransUnion and Equifax. It’s not as well known as Fair Isaac Corp., whose FICO score is used for the vast majority of mortgages. But VantageScore handled 8 billion account applications last year, so if you applied for a credit card, that score was likely used to approve or deny you.

Using what’s known as trended data is the biggest change. The phrase means credit scores will take into account the trajectory of a borrower’s debts on a month-to-month basis. So a person who is paying down debt is now likely to be scored better than a person who is making minimum monthly payments but has been slowly accumulating credit card debt.

“This is a really big deal,” said John Ulzheimer, an expert in credit reports and credit scoring. Ulzheimer said taking trended data into account has long been considered by the credit scoring industry, but hasn’t been implemented on a meaningful scale. He expects more lenders to adopt it.

People with high credit scores may be affected the most, since the goal of trended data is to see warning signs long before a borrower actually gets into serious trouble.

“When it comes to prime borrowers, you may not have bad behavior on your credit file, but a trajectory provides very powerful information,” said Sarah Davies, senior vice president for research, analytics and product development at VantageScore.

The change also shakes up the maxim that had people keeping open accounts they’d opened long ago. An important metric in calculating credit scores has been the portion of their available credit people are actually using. A person with $5,000 in credit card debt with a $50,000 limit across several cards could score better than someone with $2,000 in debt on a $10,000 limit because of that ratio.

But VantageScore will now mark a borrower negatively for having excessively large credit card limits, on the theory that the person could run up high credit card debt quickly. Those who have prime credit scores may be hurt the most, since they are most likely to have multiple cards open. But those who like to play the credit card rewards program points game could be affected as well.

Taking civil judgments, medical debts and tax liens out of the equation comes after a 2015 agreement between the three credit bureaus and 31 state attorneys general. The argument was that civil judgments and tax liens – which can significantly hurt a person’s credit report before there was time for insurance to reimburse.

People with those items on their credit report now can see a bump of as much as 20 points. But it won’t help much if they also have negative marks like delinquencies and debts that have gone to collection.

Mortgages, though, won’t be affected. The government-owned mortgage companies Fannie Mae and Freddie Mac require FICO scores for eligibility. Because of their outsized influence on the market, few mortgage lenders use VantageScore.

Do You Have Questions About Your Credit? Contact Us Today!

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Interesting Equifax History

Equifax is the oldest and largest credit bureau in existence today. They were originally founded in 1898, 70 years before the creation of Trans Union.

Two brothers, Cator and Guy Woolford, created the company. Cator actually got the idea from his grocery business, where they collected customers’ names and evidence of credit worthiness. He then sold that list to other merchants to offset his own business cost.

The success led Cator and his attorney brother, Guy, to Atlanta to start what would become one of the most powerful industries in existence today.

Retail Credit Company was born and local grocers started using the Woolford service, which expanded rapidly. By the early 1900’s the service had expanded from grocers to the insurance industry.

Retail Credit Company continued to grow into one of the largest credit bureaus by the 1960s, with nearly 300 branches in operation. They collected all kinds of consumer data, even rumors about people’s marital lives and  childhood. They were also scrutinized for selling this data to just about anyone who would buy it.

In the late ’60s, Equifax started to compile their data into computers, giving many more companies access to purchase this data. They also continued to purchase many more of their smaller competitors, becoming larger and also attracting the attention of our Federal government.

In response, the US Congress met in 1971, and enacted the Fair Credit Reporting Act. This new law was the first to govern the information credit bureaus and regulate what they are allowed to collect and sell. Equifax was charged with violating this law a few years later and even more government restrictions were implemented.

Equifax was no longer allowed to misrepresent themselves when conducting consumer investigations, and employees were not given bonuses anymore based on the negative information they were collecting, which was standard practice in the past.

It is alleged that due to the tarnished reputation all of this left on Retail Credit Company, they changed their name to Equifax (Equitable Factual Information) shortly after 1979.

Throughout the 1980s, Equifax along with Experian and TransUnion, split up the rest of the smaller credit reporting agencies amongst them, adding 104 of those to Equifax’s portfolio. They then continued to grow, aligning with CSC Credit Services and another 65 additional bureaus.

Equifax has continued to grow, now maintaining over 401 million consumer credit records worldwide. They also expanded their services to direct consumer credit monitoring in 1999.

Today Equifax is based out of Atlanta, Georgia and has employees in 14 countries.

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Identity Theft 101

With more and more information stored online, more bad guys are just a password away from your personal data. As hackers have stolen financial information from large corporations like Yahoo to the Internal Revenue Service, identity theft is on the rise.

” Identity theft can trash your credit score because there’s the risk that somebody takes your name, your social security number, and your solid credit rating, goes out, applies for a bunch of credit and then doesn’t repay any of it.” cautions Chief Financial Analyst Greg McBride. “That can really just destroy what otherwise had been years of hard work on your part to build a solid credit rating.”

  • Monitor Accounts Yourself – Check all of your bank account statements and credit and debit card purchases line by line. Most creditors and lenders provide updated online statements, so you can monitor any unusual activity daily. Don’t look for just big purchases – ID theft often starts with small innocuous purchases, jest to test the card (and your diligence).
  • Report / Dispute Incorrect Charges on Credit Cards and Debit Cards – It’s important to resolve these quickly, especially with debit cards. Credit card liability for misuse is limited to $50.00 by Federal law; but debit card misuse must be reported within 60 days from the statement date, to avoid liability for the purchases.
  • Replace Credit Cards and Debit Cards if Compromised – If you find your cards have been compromised, cancel and replace them immediately.
  • Check Existing Fraud Protection Features – Some card issuers offer notification services for unusual purchasing patterns (such as foreign charges) or purchases above a certain limit. Check with your credit card companies about these services. If you are already aware of fraudulent charges to your identity, you could also apply for a full credit freeze. This may be inconvenient for you, because you would have to inform the bureaus before applying for any type of credit, so only take this step if you are trying to limit existing fraud.
  • Invest In A Credit Monitoring Service – There are packages available to monitor your credit report on a regular basis. These services offer fraud alerts, which generally require potential creditors to contact you personally before approving any new credit. Signing up for these alerts will make it more difficult for fraudsters to use your information.
  • Be Aware of Scams – Frauds such as fake correspondence, phone calls, or e-mail phishing scams will come from criminals claiming to be from your card company or a retailer. Twitter, Facebook and other social media are not immune. Legitimate companies will not ask for personal information such as passwords or a social security number since they already have the information they need. If a company asks for your Social Security number or password over the phone to verify your identity, only give out this information if you placed the call and are sure you are talking to a company representative.
  • Passwords – Use different, difficult passwords and change them often. It’s a hassle, but not as big of a hassle as compromised accounts.
  • Stick to Trusted Sites – Only make purchases from a reputable secure sites. Make sure the URL starts with https://, not http://. Avoid links when possible; they may direct you to a dummy site.
  • Shred Documents – Shred any documents containing financial information when you no longer need them.
  • Check Medical Statements – Look over all statements you receive from your medical practitioners. The long processing times for medical claims could lead to bills for fraudulent charges under your name reaching collections stage before you even realize they exist. You should also open and check any new Explanations of Benefits (EOBs) you receive, even from organizations you have not dealt with before. These are explanations of the services that you are being billed for, as well as the amounts involved, which are usually sent after a new plan is taken out.
  • Computer Precautions – Protect your computer against malware with updated antivirus software (Macs are vulnerable as well as PC’s). Low-cost software is also available to automatically scan and encrypt sensitive data on your hard drive, making it far more difficult for hackers to use this information should they gain access to your computer. You should also avoid public computers and minimize your use of wireless connections for financial transactions. Finally, don’t let your computer remember your password. It may be convenient for you, but it’s even more convenient for thieves.

Do You Have Questions About Credit?    Call Us Today!

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Texas Financial Literacy – How Do You Rate?

Recent Study Gives Texans A Failing Grade On Money Matters.

Texans scored a C, D or F on 49 of the 71 factors that went in to assigning the grade for the state’s financial literacy.

The average Vantage Credit Score in Texas is only 655, compared to a national average of 666.

Only 73 percent of Texans pay their bills on time, and only 40 percent have prime credit. In both cases, Texans scored well behind national averages.

When it comes to credit cards, only half pay their bill in full, about 35 percent make only minimum payments and the average credit card balance is more than 10 percent of annual household income.

In category after category, Texans scored below national averages.

But the real problem is in retirement investing, where we scored an F.

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Experian Holiday Spending Survival Guide

Find The Holiday Harmony Within

It’s no wonder that the holidays are known as the season of light – something that can be hard to hold onto in the frenzy of the last days of the year. But make sure you aren’t sacrificing precious time with loved ones and family because of an arbitrary list of tasks that might include icing an army of gingerbread men and/or creating a larger-than-life North Pole landscape, on your front lawn. If your hosting a holiday party, plan for your cost without feeling obligated to go overboard. Sticking to your budget can feel great – at least better than entering the New Year under a mountain of last minute debt.

The holidays are here. Make sure you can keep your budget (and your goals of maintaining your sanity – financial and otherwise) on track to keep things merry and bright.

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Experian Holiday Spending Survival Guide

Cut Down Your Overall List Of Gifting

Have you committed yourself to an unrealistically long shopping list? Don’t be afraid to reevaluate and make some trims – especially if you’re part of a big family gifting pattern that means having to find something for each person individually. Being able to gift to couples or families things they might enjoy together can often have more impact as well as save you time and money. You may also consider dropping a few folks from the gifts category down to holidays cards only.

With the advent of the e-card, it’s easier and more affordable than ever to keep in touch with those both far and near. I remember in our house, holiday cards were a very manual, multi-step process each fall. But my mom kept notations in her book of who she received cards from each year so she could track who she was in communication with her, so her (and our) efforts wouldn’t be wasted.

Actively Work To Cut Your Stress Levels

Practicing some self-care during the business of holiday time is never a bad idea. Thinking back to stressful holiday seasons of the past, recall the moments that were the most frustrating. Was it the interminable waits at the post office to ship packages with rush shipping? Was it a last minute trip to the mall to shop for surprise gifts off shelves that had already been picked clean? Do what you can now to be planful and avoid the tension of last minute work that can send your carefully constructed budget into a tailspin, right before Santa’s arrival.

More ………

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Experian – Holiday Spending Survival Guide

Shop Thoughtfully and Purposefully

Once you’ve split out your overall funds and you know what you have to work with per-head (more or less), you can start to think about the ideal gift for each recipient. If you’re a natural gift-giver, this might be where your thought process starts  and it’s now simply a matter of fitting those ideas into your freshly formed budget. You’ll also be able to identify the stores that you can check these gifts off your list and look for special offers to save even more there, during the season. Some of these offers also offer or combine with free shipping or other incentives at peak times.

Alternatively, you might think about starting your shopping for holiday gifts early next year – like, ridiculously early. You might follow the example of the friend who shares on social in September that they just bought their last holiday gift. While a departure from the norm, it means that you can be truly selective and shop the best sales of the entire year, not just the weeks that make up the holiday shopping season. Consider how playing the long game when it comes to holiday shopping could help you bring smiles to everyone on your list.

More To Follow ……

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Experian – Holiday Spending Survival Guide

It’s no secret that holiday-time can be stressful for many people. While it’s the season that fills calendars with food, family and gatherings, that can also mean host of additional expenses to balance and budget for. If you’re working to avoid starting off the New Year with a credit hangover, you might already be making more progress than you think toward a calmer and less frantic holiday season this year.

As the season picks up steam, make sure your plan to keep your finances on track includes some of these key ideas:

Set Financial Goals That Make Sense For You

If you have dozens of close family members to buy gifts for, your budget picture will look very different from someone who gifts primarily to a friend group. Deck your gifting plan against a maximum dollar amount you’re comfortable spending to see how what you’re working with can split against the number of gifts you’ll need to buy. When you tally your gift count, don’t forget to build in a few extras, too – the hostess gifts for parties you might be planning to attend.

More To Follow …….

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Is It True or Is It A Myth?

Myth 7

If a negative item is successfully deleted from my credit report, it will reappear on my report.

The credit bureaus have cleverly and purposely spread this myth through the news media and government agencies. However, the truth of the matter is the credit bureaus will often temporarily delete a negative listing if they have not heard from the credit grantor within 30 days since an item was disputed. Should the credit grantor submit verification a week or two later, it will be re-inserted  –  This is called a “soft delete”. Most of the time the creditor simply fails to respond and the negative item is “permanently deleted”. If the creditor verifies the item the account may still be deleted at a later date when the “challenge process” is intensified.

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Is It True or Is It A Myth?

Credit bureaus are affiliated with the government, infallible and above reproach.

Credit bureaus are publicly traded companies, in business to impress stockholders – They are not government agencies. They are one of the most heavily regulated industries. The strict regulations stem from a public outcry of abuse and mistakes. A recent survey by an independent research group revealed more than 70% of credit reports contain mistakes or errors. The prevalence of errors led to consumer protection legislation that allows consumers to challenge the bureaus and force the removal of inaccurate, outdated or unverifiable information.

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Bill Spragg at 281 804 – 3333 or BSpragg