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

Credit card use continues to decline. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

Use of credit cards is beginning to trail off as more people start preferring to use cash. Fewer people are willing to go into debt and less willing to borrow money for purchases by using a credit card. Card use has been declining for some time, and higher interest rates and fees make credit cards less attractive to the cost conscious.

Major credit bureau notes decline in credit card use

Credit bureau TransUnion has noted a decline in the use of general purpose credit cards, according to Daily Finance. The credit rating bureau asserted in a recently released study that nearly 8 million people quit using a general purpose credit card, the kind normally issued by a bank. The number of people who either don’t have or don’t use a credit card now is more than 78 million, according to TransUnion. TransUnion also noted that credit card delinquencies declined by 9.8 percent during the third quarter of 2010. TransUnion credit rating bureau compiles data used in determining a persons’ credit score.

Federal Reserve notes less credit card use

TransUnion also noted that consumers were still using other forms of credit, such as installment loans, despite the drop in credit card use. The Federal Reserve, according to the Wall Street Journal, observed that credit card use was still declining in February of 2011, but non-revolving credit use was increasing. Revolving credit use, or bank-extended lines of credit and credit cards, declined by $2.71 billion during February 2011. Revolving credit use has only risen once since 2008. Non-revolving credit, or non-mortgage consumer loans such as auto loans or personal loans, increased by more than $10 billion during the month of February. The increase was likely driven by auto sales, which have been increasing steadily for the past few months. The Federal Reserve data indicates that TransUnion’s assessment of declining use of credit cards and continued use of other forms of credit is plausible.

Interest rates and fees on the rise

Because of the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act), banks have stricter rules about how they can change interest rates. The rates are not capped, according to Fox News, but the card issuing institution is prohibited from raising interest rates without a certain amount of notice. The average interest rate on credit cards is beginning to slowly rise along with the number of memberships fees that banks are charging customers.

Sources

Daily Finance

TransUnion

Wall Street Journal

Fox News

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

Credit card delinquencies and debts declined over the last quarter of 2010. Image: MoneyBlogNewz/Flickr/CC-BY

Fewer credit card delinquencies are being reported, and the level of credit card debt is declining as well. Data released by credit bureau TransUnion indicates that more people are paying off debt and more credit cards are being issued. Falling delinquencies indicate many people are paying off holiday shopping sprees.

2010 the year of debt relief for many consumers

During the last three months of 2010, the number of delinquencies for credit cards declined considerably, according to ABC. Credit score bureau TransUnion released a report that indicated credit card delinquencies fell to just 0.82 percent in the last three months of 2010, compared with 1.21 percent in the last three months of 2009. The third quarter of 2010 had a delinquency rate of 0.83 percent. Delinquencies normally rise during the last three months of the year and the holiday shopping season, but now it appears more people are relying on themselves to avoid debt settlement relief, rather than having to get a loan to pay off toys for the tots.

Balances rise and fall

The national average balance carried by credit card holders has also declined. The combined average balance for all major cardholders — all people that hold a Visa, MasterCard, Discover or American Express — declined to $4,965 for the last three months of 2010, which is a reduction of 8.6 percent from the same period in 2009. However, according to the Washington Post, the average balance rose in 33 states. Mississippi, Iowa and Washington D.C. had the highest balances in the nation.

Rise in new issued cards

Despite recent caterwauling from credit card companies that their businesses will be hampered and lose lots of advance cash because of the CARD Act, new cards are being issued at a considerable pace. The last quarter of 2010 had the number of new credit cards rise by 19.1 percent. That was the first time since 2007 that the number of newly issued credit cards rose for two consecutive quarters.

Sources

ABC

Washington Post

Installment loans are still popular, but surveys are showing that Americans are getting better at managing their credit. TransUnion made a prediction recently that credit card delinquencies should continue to fall throughout 2010, but at a much slower rate. Their studies showed that people want to pay off credit and realize how important a good credit rating is, but the unemployment rate is going to hamper their efforts. Still, TransUnion is estimating that the delinquencies on MasterCards and Visas should both drop to 1.04% by the end of the year.

How the numbers are calculated

TransUnion uses a calculation to predict how people will handle their future credit and it involves former payment habits of customers. The common belief is that the past three months’ payment habits are indicative of how a borrower will deal with credit in the future. For example, the chances of a consumer catching up on payments after just missed deadline is 86%, however if they miss two payment deadlines, that percentage drops to 62%. After three missed payment dates, the percentage is under 20%.

Numbers like this give analysts the ability to project what the future of lending will hold. Though TransUnion is making predictions that numbers of non-delinquent payments are on the rise, that rise is said to be just a fraction of how sharply it declined in past months. Full recovery is still a long way off.

Where the lending industry is headed

Director of consulting and strategy at TransUnion, Ezra Becker said that “delinquencies lag behind other statistics, like the jobless rate. Until more people are back at work, there will not be any dramatic improvements in payments being made on time.” The number of new unemployment claims has been lower in recent months than the year-long norm and that’s good news for economists. They are studying the economy looking for nascent signs of relief. They are also trying to forecast the future by combining research on mortgage, car and installment loans. Combining all forms of lending is enabling them to formulate what to expect in coming months.

One of the most closely watched states is Arizona. In the recession, Arizona was one of the hardest-hit and its turnaround is much anticipated. It is the only state where industry analysts are predicting credit card delinquencies will still rise throughout the beginning of 2010. Becker added, “Credit card reforms that take effect in February will have a material impact on the credit card industry next year.” He believes that lenders will be tight-fisted still, but will come up with new lending options for those without premiere credit histories. “The industry will adapt to new rules and a customer base with new credit requirements. Lenders will be forced to be more innovative in the products that they offer and how they manage their customers,” he added.

Consumers need to be smart

Though there are fresh products coming to the market, it’s important for consumers to be as vigilant as ever regarding their credit. New reforms are slated to aid people with all types of credit, but that does not mean that the lending process will be any simpler. For anyone needing credit, mortgage loans, car loans, or installment loans, it will be very important to have relatively good credit. Becker added, “People with very low credit scores may have to wait longer for the door of credit to open for them, but they still need to be fixing their credit now.”