Revamping the Credit Score System

creditscore1Should the credit scoring system be revamped? In a controversial move, Rep. Maxine Waters (D-Calif.) proposed a federal amendment that would require the national credit bureaus to delete negative information such as late payments on credit cards and mortgages, foreclosures, and short sales after only four years. Currently, those negative marks remain for seven years.

If this passes, the “sins” that occurred during the housing bust years would be washed away now, enabling more Americans to start fresh sooner.

In Sweden, negative credit marks are deleted after only three years. In Germany, after four.

Arguing against a more lenient credit system is Stuart Pratt, president and CEO of the Consumer Data Industry Association. He said “82 percent of credit systems” worldwide require negative data to remain on record for four to 10 years.

On the side of leniency is the real estate and mortgage industry. They believe that four years is long enough to be “punished” for financial hardship, and that a revamped credit system would provide a much-needed boost to the housing and the U.S. economy.

Pratt told Kenneth Harney, syndicated columnist for “Nation’s Housing” that “it doesn’t seem right to us coming out of the Great Recession that we would erase predictive data.”

What do you think? Should late payments, foreclosures, and short sales be deleted from credit files after four years? Or remain as is for seven?

 

Equifax Forced to Pay $18 Million to Oregon Woman

Like David winning against Goliath, Julie Miller of Oregon won $18.6 million in a lawsuit against the giant credit bureau Equifax.

Julie Miller, Oregon. Photo: New York Times

Julie Miller, Oregon. Photo: New York Times

Julie tried eight times to get the credit company to fix inaccurate, derogatory information from 2009 to 2011, but the bureau was unresponsive. According to the Fair Credit Reporting Act, it is illegal to report negative information that is untrue.

Equifax reported collection accounts that were false, the wrong social security number, and the wrote birthdate. Thanks to this bad information and resulting poor score, she was unable to get a loan she needed to care for her disabled brother.

Finally, she filed lawsuit for “damage to her reputation, a breach of her privacy, and lost opportunity to seek credit.” She won $18.6 million, an amount sufficient to turn her life around.

Tragically, Miller is not alone. As many as 21 percent of citizens have at least one error on their credit report, according to a recent study by the Federal Trade Commission. Moreover, five percent of these errors are significant enough to cause people to be denied the credit they deserve.

It is your legal right to receive one free credit report per year to check for credit inaccuracies. The only website I recommend for ordering your credit report is the one owned by the credit bureaus: www.annualcreditreport.com. Ordering your report from any other site is likely to give you an inaccurate score, possibly incomplete information, and thus would be a waste of your time and energy.

For more information about doing your own credit restoration or getting a derogatory, inaccurate account removed see here. The information is still current now in 2013.

Will Zero Balances Hurt Your Credit Score?

Money Kenya sent me a good question, one that is important for everyone to understand.

Q: “Can keeping my credit cards at a zero balance hurt my score? My score seems to fluctuate with no real changes to my profile.”

A: There are several elements that go into answering your question, Kenya.

First, it does not hurt your credit score to pay off your balance in full every month. It would be unfair to force people to carry a balance from month-to-month and waste money on interest in order to get the best score. The proper use of credit is paying off the balance every month.

However, if you do not use a credit card for more than six months, you will not receive any points for that card. So technically, not using a card doesn’t give a negative hit to your score like a late payment does, but you won’t receive a reward for using that card either. Therefore, for max. credit points, you want to use the card every once in a while. Buying something you’d buy anyway–such as toothpaste and a tank of gas–is sufficient. Having a small balance-to-limit ratio is best for maximum points.

The most common reason for seeing a fluctuation in scores for no apparent reason is using a credit monitoring service. This is because those services are not using the actual scoring algorithm used by the credit bureaus for mortgage lenders. While those scores might be somewhat helpful, they are not to be relied on. In the mortgage business, we don’t consider them to be your real scores.

I doubt that you are having your credit report pulled by a mortgage company every few months; and if you were, I would tell you to stop doing that as it is harmful to your credit.

The bottom line is that you should take those scores with a grain of salt. When your mortgage lender pulls your credit report, your actual scores will be different anyway.

For people who need to restore or repair their credit, take a look here. The information is as relevant today as it was in 2010.

The BIG Credit Mess: You need to know about this!

credit cardIf you live in America, you need to know about the monstrous credit mess that threatens your credit reputation and your good name. It’s real and it’s going on right now.

An investigation by 60 Minutes turned up 20 million significant mistakes on people’s credit reports. (There are 40 million mistakes, if you also count the ones that won’t get you denied for a home or auto loan.)

To put it another way, 1 out of 10 Americans has an error that will lower their score, and therefore potentially block them from getting what they deserve.

Meanwhile, the three major credit bureaus, Experian, TransUnion, and Equifax, privately owned companies, are raking in $1Billion per year. That’s right, they make money by gathering information about you and selling it to lenders, employers, and creditors. Quite a business idea, right?

Since they’re so rich, you’d think the bureaus could hire staff to fix their bloopers. But it doesn’t happen that way. They hire people in third world countries to “review” consumer complaints–and then they don’t give those people any power or authority to fix the errors. So it ends up being nothing more than a joke.

In an interview 60 Minutes conducted with three employees on staff to review consumer complaints, they said they were required to handle 90 disputes per day. 90 disputes! The employees practically rolled their eyes when they said there was no way they could actually do any type of investigation at all with that quota. What’s more, they had no power to fix errors anyway, so what would be the point? They simply assigned a two-digit code to the complaint and fired back a response to the consumer saying the debt was “verified.”

WHAT A LIE! They said on camera that there was no real verification or even an attempt to verify.

Clearly, the credit bureaus are in clear violation of the Fair Credit Reporting Act. The law states they have an obligation to do a “reasonable investigation” within 30 days.

Ohio state Attorney General said, “The industry is a mess. There’s no doubt in my mind they’re breaking the law.”

Three Things You Need to Know

1)  The credit report and credit scores you receive online are not the same reports and scores that mortgage lenders receive. What you get is a more generous score called a “consumer score.” If you want your real score, you need to ask your loan officer.

2)  If you are denied credit, it is your right, by law, to know exactly why.

3)  If you believe there is an error or incomplete information on your credit report, you have the legal right to dispute it.

Insider Information is Available

There is insufficient space on a blog to post all the insider information about how to dispute derogatory credit, but believe me, there is a right way and a wrong way to go about it. That is why I offer an e-book on this topic. To see, please click here.

I believe it is high time for Americans to know what’s going on with their own credit. We deserve the truth, and I thank 60 Minutes for their investigation and expose. Please feel free to share this information via Facebook, Twitter, email, or any other way.