September 27, 2013
This is a copy from the MoneyTalkNews Blog I found that is just too important to not pass on.
By Trisha Sherven0
The sales pitch on Fair Isaac’s myFICO website is simple enough:
The FICO® Score is a number that summarizes your credit risk. Lenders use it to make credit decisions, such as the interest rate you get when you apply for a loan.
Being able to see what potential lenders see: That’s why so many Americans are willing to pony up $19.95 to see their credit score. And if you want to see it from each of the big three credit reporting agencies, you’ll pay three times, shelling out nearly $60.
When it comes to credit, the stakes are high. According to FICO, a low score — say, 620 — means paying 5.7 percent on a 30-year mortgage loan. A great score — say, 760 or higher — could qualify you for a much lower rate of 4.1 percent. Borrow $200,000, and over the life of the loan, the lower interest rate will save $52,000 in interest — enough to put your kids through college.
So paying to see your credit score seems like money well spent. Until, that is, you discover you’re paying for a false sense of security, because the score you’re buying may not resemble the one potential lenders see.
How FICO scores work
FICO uses a proprietary formula to calculate your three-digit credit score, which ranges from 300 to a perfect 850. It will tell you the basics of how your credit score is determined (you can read about it here) but in the end it’s kind of like the original KFC recipe: You can figure out the basic ingredients, but you couldn’t duplicate it yourself.
FICO isn’t just selling credit scores to consumers. It’s also marketing them to lenders. But when your potential lender buys a FICO score, the lender has a lot of industry-specific scores to choose from. For example, there are scores customized for mortgage lenders, car dealers, credit card issuers and many others.
According to Consumer Reports, FICO serves up 49 different scores to lenders, but only two to consumers. So when you apply for a loan, it’s likely your lender will be looking at a score that’s different from the one you buy.
In short, you might be paying for original recipe and your lender might be ordering extra crispy.
Why you should be mad
The Consumer Financial Protection Bureau studied 200,000 credit files from each of the three major credit reporting agencies. One finding: In 19 percent to 24 percent of cases, consumer scores differed from lender scores sufficiently to land the consumer in an entirely different credit category.
Result? You could think you’re in the highest category, only to find you’re not. And as we pointed out above, a lower score could cost you thousands in extra interest, especially on large loans.
We contacted FICO to ask how a consumer could rely on a FICO score, given the government findings. Here’s part of their response:
It’s true that there are multiple versions of the FICO Score, including versions for different types of credit products such as mortgages, credit cards and auto loans. But these versions are all based on the same underlying mathematical blueprint as the score sold to consumers on myFICO.com.
So while a person’s FICO Score can vary depending on which version the lender is using to make a decision, it’s by far the most reliable and accurate depiction of a person’s credit health they can find anywhere, and is the best way to help gauge how lenders will view a consumer’s creditworthiness.
That’s not the entire response, but nothing they provided acknowledged the problem: People are being sold FICO credit scores under the assumption they’re identical to those being used by lenders, and they’re not. Furthermore, FICO knows this and isn’t disclosing it.
This is why many consumer advocates, including Money Talks News and Consumer Reports, are calling for changes. Here’s what Consumer Reports said in a recent article called ”Don’t Buy Useless Credit Scores“:
We see no point in buying any consumer credit scores, given that they’re not the same ones used by lenders. But if you do, and a lender or insurer later tells you your real score is lower or higher, do what you’d do with any product that doesn’t deliver: Demand a refund.
Consumer advocates aren’t the only ones complaining. So are lawmakers. The Fair Access to Credit Scores Act of 2013 is a bill now in Congress that would amend the Fair Credit Reporting Act to allow consumers a free, accurate credit score once a year, along with their free annual credit report from AnnualCreditReport.com.
Right now, federal law requires that you can see the actual credit score a lender sees and not be charged:
· If you were turned down for credit.
· If you got a higher interest rate on a loan because of your score.
· If you received unfavorable terms on a credit card.
Here’s what the proposed law would do, according to a press release from the bill’s sponsors:
This bill would expand upon that provision to provide all consumers with an annual credit score to complement their free annual credit report.
Also, this measure would ensure that the free annual credit score received by consumers is a reliable score actually used by lenders, rather than an “informational score” of unknown reliability. It would give consumers access to all scores generated in the previous year and stored in their credit files – information that lenders have accessed about the consumer’s individual creditworthiness – instead of consumers seeing only those scores that resulted in “adverse actions,” as provided by current law.
What you can do
In addition to contacting your elected representatives, there are ways you can fight back:
· Avoid buying scores, and don’t rely too heavily on those you pay for.
· As Consumer Reports suggests, demand a refund if the score you bought varies widely from the one your lender uses.
· Before you agree to a loan or insurance rate, ask to see the score the lender used.
· Check your credit in other ways, like the free annual credit reports you can get at AnnualCreditReport.com. Get a picture of your credit throughout the year by choosing a different credit bureau report every four months.
· Support the Fair Access to Credit Scores Act of 2013 by clicking here to sign a petition.
Do you think we should get free, accurate credit scores? How do you feel about paying for a score that may not be reliable? Sound off on our Facebook page.
Read more at http://www.moneytalksnews.com/2013/09/27/that-20-fico-credit-score-isnt-just-expensive-it-may-be-useless/#sgcgwLxEYBhisZDX.99
This post comes from Christine DiGangi at partner site Credit.com.
The U.S. Department of Housing and Urban Development earlier this month announced changes to the reverse mortgage program, which allows homeowners 62 and older to pull equity from their homes without making payments. Once the changes go into effect Oct. 1, it may be more difficult to get a reverse mortgage, and homeowners will have access to less of a home’s value.
HUD issued new principal limit factors, which reduce the maximum amount a homeowner can withdraw. Industry experts estimate principal limits will be about 12 percent to 15 percent lower starting Oct. 1. In addition, a new financial assessment requirement means an applicant’s credit history may impact his or her ability to get a reverse mortgage.
Less money for more security
HUD says the agency made these changes in order to strengthen the program. As a result of the Great Recession and declining home values, the Federal Housing Administration Mutual Mortgage Insurance Fund took a hit, and because the viability of the program depends on that fund’s resources, the agency says it established the new guidelines.
“It’s actually just to kind of shore up the program,” said Carolyn Fields, a certified reverse mortgage professional in Florida. She further explained the changes. “Bottom line is we’re all living longer, the baby boomers are retiring earlier — this is just to kind of help them plan retirement and just to kind of make sure that the program stays healthy.”
The deadline to apply for a reverse mortgage under the current rules is Sept. 27. With the passing of that deadline goes homeowners’ ability to take their loan in a lump sum. With few exceptions, people can tap only 60 percent of their principal limit in the first year of a reverse mortgage, and the amount a homeowner pulls will affect their upfront FHA mortgage insurance premium.
Who will qualify?
Fields said HUD is still working out the details of financial assessments, which will roll out in January. But potential borrowers can expect lenders to review all of their income sources, as well as their credit history, as part of the process of determining their capacity to pay insurance premiums and property taxes.
As is the case with all loans, consumers need to check their credit reports before applying. Studying one’s credit score using a free tool like the Credit Report Card will show areas that need attention, and allow you to plan ahead and improve your score to make a smoother loan-qualification process.
With the changes in cost and procedure, reverse mortgages will become less of an emergency fund and more of an asset for retirement. But that’s not such a bad thing, since long-term planning is the core of the program.
Dun & Bradstreet is the primary company used to evaluate business credit and issue a credit score known as Paydex. There are also other companies that provide similar credit evaluation services to businesses based on their independent databases.
One of them is Equifax who offers a business scoring credit model knows as Equifax Small Business Enterprise/ Equifax Small Business Credit Risk Score. Equifax, one of the three major consumer credit rating bureaus, is now providing business credit evaluations for over 22,000,000 small businesses and corporations to detect early signs of trouble by monitoring key customers, suppliers & partners. Equifax's model is designed for companies that provide goods and services to small businesses.
The score was created to enhance risk assessment throughout the account lifecycle by predicting the probability of a new or existing small business customer becoming seriously delinquent on supplier accounts, or bankrupt, within a 12 month period. Credit scores range from 101-816 with a lower score indicating a higher risk for serious delinquency.
There are also four reason codes which indicate top factors that impact the credit score for a better understanding of risk. Equifax does provide both consumer and business credit risk models, but there are considerable differences between the two.
You can get setup with Equifax credit monitoring through our Business Finance Suite. There is a cost for enrolling with them, although you can get free access to your Experian Smart Business data in our Business Finance Suite.
Contact me today to get access to your very own Business Finance Suite and start getting all the money you need for your business while building an exceptional business credit profile..
More than 10 million homeowners are still deeply underwater on their mortgages, according to a leading housing analytics firm.
In a report released Thursday,RealtyTrac said that 10.7 million U.S. homeowners owe at least 25% or more on their mortgages than their properties are worth, and another 8.3 million are either slightly underwater or just barely above it.
The numbers are improving, however. Deeply underwater homeowners – with a loan-to-value ratio on their properties of at least 125% -- represented 23% of U.S. residential properties with a mortgage in September, according to RealtyTrac. That number is down from 11.3 million deeply underwater homeowners – about 26% of all residential properties – in May. A year ago, there were 12.5 million deeply underwater properties.
“Steadily rising home prices are lifting all boats in this housing market and should spill over into more inventory of homes for sale in the coming months,” said Daren Blomquist, vice president at RealtyTrac. “Homeowners who already have ample equity are quickly building on that equity, while the 8.3 million homeowners on the fence with little or no equity are on track to regain enough equity to sell before 2015 if home prices continue to increase at the rate of 1.33 percent per month that they have since bottoming out in March 2012.”
Trevana Properties is a placement company working with a variety of hedge funds, REIT's, commercial banks, specialty boutique lenders, private investors and other funding sources not widely known to the general public.