Applying for a loan will cause a credit score to take a hit. Photo: TrinityCreditServices/Flickr/CC-BY

The point of a credit score is so companies can project whether a person is a risk to extend to credit to. However, a person’s credit score takes a hit every installment loan or mortgage lenders ask to see it, meaning a person looks like more of a credit risk for trying to use credit.

Lose credit to use credit

Anyone who applies to get a loan of any kind, whether it’s a simple installment loan for personal use or a larger loan like a mortgage, is subject to a credit check. A lender gets applicants’ credit scores from one of a number of agencies. Unfortunately, the manner in which the score is requested can hurt a person’s credit rating. It’s called a “hard pull,” according to AOL News. When a lender requests a credit score from a credit rating agency with the intention of possibly lending to the applicant, a couple of points are taken off the top of the credit score.

Two-week window

One of the main incentives of maintaining a good credit score is to be able to get the best possible interest rates. Ironically, a good credit score can be negatively affected when a person applies for a loan that they worked hard to be able to get the best rate on. However, there is way to loan shop and avoid a precipitous drop. Shop for loans within a 14-day period. If all “hard pulls” are done within two weeks, all inquiries count as one. After that, don’t apply for any more loans until your credit score climbs back up.

Rating agencies not in the business of making it easy

Though credit rating agencies Experian, EquiFax and TransUnion are in the business of providing information to other businesses — not to consumers — they have come under fire for keeping so-called VIP lists, according to the New York Times. The three main credit rating bureaus have been accused of treating information for the wealthy and high-profile people in a more preferential manner and the Federal Trade Commission is currently investigating the allegations. The credit bureaus, according to Fox, deny that any such considerations are made.

Sources

AOL News

New York Times

Fox

The credit squeeze: a double standard. Flickr / alancleaver_2000 / CC-BY

Credit Rating Bureaus issue reports that affect the financial life of everyone who has ever used or will ever use credit. All consumers are judged by their credit rating when it comes to credit cards, mortgages and even job offers.  It may be disturbing to some, however, to learn that the bureaus have a two-tiered system when it comes to resolving errors: one standard for the well-known, well-connected and powerful people — and one for everyone else.

VIPs receive immediate help

According to the New York Times, the three major agencies, Equifax, Experian and TransUnion, keep a VIP list including celebrities, politicians and other influential people. Those on the list receive special attention and most errors are corrected immediately.

Average consumer routed into automated system

For the average credit user, however, disputes are routed into a largely automated system. Complaints are routinely transferred to overseas subcontractors who make quick decisions based on a cursory glance at records. Consumers then can only challenge disputes through the expensive court system.

Influence overshadows accountability

“The legal responsibility of the credit reporting agencies and of the creditors is well established,” said Leonard Bennett, a consumer lawyer in Newport News, Va. “There is a requirement that they do meaningful research and analysis, and it is almost never done.”

As credit has become more and more essential to survival in the modern financial world, the credit rating bureaus have become increasingly powerful.  Their reports determine the all-important credit score that lenders use to determine creditworthiness.  However, consumer advocacy groups claim their accountability has not kept pace with their influence.

Bureaus work for lenders, not consumers

“There is no neutrality in the credit reporting agencies,” said John Ulzheimer, president of consumer education at SmartCredit.com. “They work for the lenders who buy credit reports from them, and anyone who suggests otherwise is not being intellectually honest.”

Reaction of credit rating bureaus

When questioned about the VIP category, TransUnion said all consumers “have the ability to speak to a live representative.” Equifax claimed all consumers who came to the bureau were provided with a number for customer service.  Experian denied that it had a VIP list.

FTC to report on bureau accuracy

Next year the Federal Trade Commission is expected to release a study on the accuracy of credit reports.  The report may or may not contain recommendations for legislative action.

Sources

New York Times

MSN

Telegraph

Experian is being sued for fraud; customers say the company doesn't provide relevant information in the credit reports it provides to customers. Photo Credit: Swampyank/Wikimedia Commons/CC-BY-SA

A lawsuit has been brought against credit bureau Experian in California. Experian is one of the three main credit bureaus, along with TransUnion and Equifax, and credit ratings from those bureaus are used in creating a persons’ credit score. The plaintiffs in the suit, which may become class action, are alleging fraud.

Plaintiffs say free credit report sites give false info to consumers

Plaintiffs in the California lawsuit against credit bureau Experian are saying the bureau has defrauded. They say Experian provides misleading information on the websites where the company sells copies of credit reports, according to MSNBC. The suit claims that Experian provides the wrong score, purposefully, through FreeCreditScore.com and FreeCreditReport.com. The sites, which charge a $14.95 per month fee to users so they can monitor their credit report activity, provide the Experian PLUS score. The reason why the plaintiffs are seeking a class action status is because that isn’t the score lenders would look at if a person applied for a personal loan.

Lenders look at FICO scores

When lenders or other parties check a person’s credit score, they aren’t looking at a score that one credit bureau comes up with. Lenders look at the FICO score, or the number from the credit scoring system developed by Fair Isaac and Company. Fair Isaac scores are calculated by looking at certain data about a person and coming up with a numerical rating of that persons’ credit worthiness. Experian, Equifax and TransUnion all produce credit scores with the FICO formula, and those scores are reported to lenders. The lawsuit accuses Experian of fraud because the PLUS score is not reported to anyone and would not be considered if someone applied for a job or installment loan. The suit says Experian misled consumers by advertising worthless information for sale. Experian had to be compelled by threat of a Federal Trade Commission suit to advertise the link to the government site where consumers can request the one free report from each bureau that people are allowed by law.

States trying to get employers to mind their own business

Labor rights advocates have never been enthralled with the idea of employers checking the credit scores of potential new hires. At least half of the United States isn’t either; 49 bills in 25 states are currently before state legislatures to legally bar employers from checking credit scores of a potential new hires. Though credit bureaus that sell the reports to businesses and some businesses contend that it can catch a potential problem employee, civil rights and labor advocates insist that it is prying into an area that no employer has a right to.

Sources

MSNBC

USA Today

Renters, Experian wants to help you with credit repair. (Photo Credit: CC BY-ND/Christopher/Stumble Forward)

Renters interested in rebuilding their credit scores now have another tool at their disposal, reports The Detroit News. The credit bureau Experian, which acquired the property management database company RentBureau last summer, will begin factoring rental history into credit scores. This move will help scores of consumers, but it may also hurt, experts say.

Millions affected by Experian’s decision at launch

Experian RentBureau, which collects rental history data from property management companies across the U.S. on a daily basis, makes renter data available almost instantaneously through a powerful database delivery system. Before the acquisition, RentBureau had collected up-to-date payment history data on about 8 million renters, a number that is expected to expand exponentially thanks to the new connection with Experian’s database of more than 215 million U.S. consumers. A few million consumers will appear in the Experian RentBureau database at roll-out.

Not only will Experian RentBureau make it easier for consumers interested in credit repair, but it will make the tenant screening process much simpler for resident screeners and property managers, enabling them to better protect their investment. Debt collector recovery rates have also increased through the use of the RentBureau system.

Getting credit for being on time

Experian RentBureau Managing Director Brannan Johnston said the service could help one-third of Americans who rent rather than own.

“It’s a huge thing for those individuals who don’t have a credit history, whether they are a recent college grad, an immigrant or maybe even a divorcee,” said Johnston.

Experian began adding positive rental history data in December, reports The Detroit News. By 2012, the company will also begin uploading negative information regarding evictions and skipped rent. Experian currently has no plans to add late payment data, which is not easily reflected in the company’s credit reporting system, but that doesn’t mean that renters can slack off and expect their credit to get off Scot free.

“If you skip out on your apartment, chances are that the manager is going to turn it over to collection and the collection agency will report to a major bureau,” said Johnston.

The credit reporting industry hasn’t caught on – yet

Credit bureaus Equifax and TransUnion, as well as credit-scoring company FICO, do not have plans to incorporate RentBureau information at this time. FICO spokesman Craig Watts said that once FICO has analyzed RentBureau data internally, the company will make a decision as to whether it should factor in to a consumer’s overall credit score.

Tips for renting without a credit check

In some cases, it is possible for a consumer to rent an apartment without undergoing a credit check. Much like consumers with bad credit who are able to take out short term loans, other methods of evaluating a tenant’s worthiness are available. Ask around. About.com suggests using Craigslist and Sunday newspaper classifieds to find landlords who do not use traditional credit checks. In general, a no credit check rental agreement will need a co-signer and should expect to pay more each month.

Sources

About.com

The Detroit News

Experian

How RentBureau works

Do you live in one of the top 10 most credit card debt-ridden cities? (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

Credit-card-wielding consumers have found that old habits die hard. That’s why it comes as no surprise that a recent study by credit reporting agency Equifax states that the U.S. is buried $790 billion deep in credit card debt. Broken down by city, here are the top 10 most credit card debt-ridden cities.

10. Winston-Salem, N.C.

On average, credit card debt per household is a robust $6,505. As the median household income is $42,869, the percent of annual income owed to credit card companies is 15.17 percent. Imagine what could have been accomplished with payday loans, rather than high-interest revolving debt that most people nurse along with monthly minimum payments.

9. Fayetteville, N.C.

One of four N.C. cities on this list, Fayetteville has 126,723 households that owe $6,519 per household on credit cards. A sizable percentage (15.34 percent) of median annual income – $42,506 – is paid in attempt to eliminate that credit card debt. With short term loans with a two-week maturity cycle, a great deal of interest debt could have been avoided.

8. Youngstown-Warren-Boardman, Ohio/Penn.

Median income here is lower – $39,304 – but so is the average household credit card debt: $6,142. However, that’s still 15.63 percent of the annual income on credit card debt alone. That’s about $1.4 billion in total debt, citywide.

7. Pensacola-Ferry Pass-Brent, Fla.

The 170,817 households in the Pensacola area owe $6,649 each to credit card companies, 15.79 percent of the median household income, $42,106. With personal loans, there would have been no cycle of debt.

6. Asheville, N.C.

North Carolina has heavy anti-payday loan legislation in place, so the credit card debt comes as no shock. Households owe 16.12 percent of annual income.

5. El Paso, Texas

Average credit card debt is lower at $5,349. That’s still 16.15 percent of annual income in El Paso, though.

4. Duluth, Minn.

Median household income: $38,392

Percent owed on credit cards: 16.72 percent

3. Toledo, Ohio

Another state that makes payday lending impossible, Toledo households owe 16.72 percent of annual income on credit cards. If payday lenders were allowed to operate at market rate in Ohio, hitting that percentage would be nearly impossible.

2. Canton-Massillon, Ohio

Median income: $40,912

Percent owed: 17.23 percent

1. Wilmington, N.C.

Households earn $42,392, but owe 17.26 percent on credit cards.

Sources

About.com

Yahoo Finance

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