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credit-scoring

Why Do the Credit Scores I Pull Look Different Than the Ones My Lender Pulls?

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Why Do the Credit Scores I Pull Look Different Than the Ones My Lender Pulls?

“Help! I’m really confused! I got all 3 of my credit scores online last week and they looked really good. Today I applied for a mortgage and the scores the lender pulled look totally different. All 3 scores are about 50 points lower than the scores I saw online. Thankfully, my scores were still high enough to get a mortgage loan, but why are the scores so much lower today?”

In the credit world there are few things which frustrate and upset consumers more than discovering the sometimes vast difference between consumer credit scores and the credit scores used by lenders. Popular TV commercials for credit monitoring websites often confuse consumers and lead them to believe that they have only one credit score. However, the truth is that there are actually hundreds of different types of credit scores. The idea that you have one "official" credit scores is a complete myth.

Consumer Scores Vs. Lender Scores

While there are hundreds of credit scores available, most of these scores can be boiled down into one of 2 categories - consumer scores or lender scores. (Insurance companies often use credit based insurance risk scores as well, but for the purpose of this article those scores will fall into the "lender" category as well.) Consumer scores are scores that are accessible to you individually. You can purchase these scores from the credit bureaus directly, from FICO directly, or from a host of consumer credit monitoring websites. Some websites will offer you free credit scores in exchange for signing up for a trial offer of their credit monitoring services. Other websites will offer you a free score from 1 of the 3 major credit bureaus (not all 3) in exchange for your email address and the right to advertise financial services to you. CLICK HERE if you would like to compare websites where you can access your 3 consumer credit scores.

Lender scores are almost always some version of a FICO score. There are some lenders which have begun using VantageScore credit scores (a score created by the credit bureaus themselves) in recent years, but FICO is still the most popular lender score in use today by a landslide. Both FICO and VantageScore have released multiple generations of their credit scoring software. Additionally, FICO scores come in many varieties (FICO Mortgage Score, FICO Auto Score, FICO Personal Finance Score, FICO Installment Loan Score, etc.) and each different FICO score variety typically has different versions in use as well. If today you were to pull a copy of your consumer credit scores, have a mortgage loan officer pull your credit scores, and have an auto lender pull your credit score then you have almost a 100% chance of getting a different set of numbers every time. Credit scores can vary pretty wildly depending upon which credit scoring model is being used to calculate them.

Focus On Healthy Credit

If you are feeling frustrated or overwhelmed as you try to keep track with all of the different possible credit scores, you are not alone. Remember the statement above revealing that you have hundreds of credit scores? It would be practically impossible for a consumer to keep track of each one of these scores individually. Instead of spending time and energy focusing on the numbers, it is much better to focus on the health of your credit as a whole.

The fact of the matter is that all credit scores are based upon the same data. Your credit scores are calculated from the information which is contained in your credit reports. (Don't forget, you can get a copy of all 3 of your credit reports, without scores, completely free once a year at www.annualcreditreport.com.) If your credit reports show that you routinely make late payments on your accounts, your scores will suffer regardless of who pulls them or which credit scoring model is used to calculate them. If you have clean credit reports with no collections, no late payments, and low credit card balances then all of your many scores will likely be in great shape. You may have hundreds of scores, but you only have 3 credit reports. You may not be able to control your credit scores, but you can absolutely control your credit management habits.  

michelle-black-credit-expert

Michelle Black is an author and a credit expert with nearly 2 decades of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars on various credit and financial topics. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft.

Expert Credit Advice:

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Tackling Your Holiday Credit Card Debt

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Tackling Your Holiday Credit Card Debt

You may have began the holiday season with a firm conviction: I will not overspend this year. I will only spend what I can afford. I will not go into debt. Yet the truth is that despite the best intentions, we Americans are notorious for digging ourselves into big financial holes during the holidays.

If you find yourself wanting to run away and hide from your impending credit card statements, this article was written specifically with you in mind. It is too late to undo the damage your holiday spending sprees may have caused, yet that is no excuse for wallowing in self pity for the next few months and allowing the damage to fester.

Excessive credit card debt can place a burden upon you financially and can damage your credit scores as well. As a result, it is important for you to take action immediately so that your credit and your finances can start to recover.

Make a List, and Check It Twice

The first component in your post-holiday recovery plan needs to be a detailed list of the damage which has already been done: aka a list of your outstanding credit card balances. You should begin the list by writing the smallest balance at the bottom and working your way upward. Here is an example to help you get started.

·        ABC Bank Card: $2,000 Balance

·        XYZ Bank Card: $1,500 Balance

·        QRS Bank Card: $800 Balance

Start at the Ground Floor

Credit card debt harms your credit scores even when you make all of your monthly payments on time. The reason why credit card debt can cause so much credit score damage is because 30% of your FICO credit scores are largely based upon your revolving utilization ratio (aka your credit utilization). Your credit utilization is basically the relationship between your credit card limits and your credit card balances. The closer your balances climb to your limits the worse the impact will be upon your credit scores.

Credit scoring models like FICO and VantageScore pay attention to the credit utilization ratio on all of your credit cards combined and also to each of your credit card accounts individually. This means that each time you pay a credit card account off you will probably see at least some credit score increase. In fact, when you pay a credit card balance down by even a mere 10% you might begin to see some positive credit score movement.

By paying off your lowest credit card balances first you may be able to bring about a positive increase in your credit scores more quickly. For example, paying off the $800 on the card with the smallest balance in the example above (QRS Bank) would probably help your credit scores more than if you paid the same $800 on either of the cards with the higher balances (ABC Bank or XYZ Bank). Starting at the ground floor and working your way up as you pay off your credit card debt will give you a lot more bang for your buck.

A Commitment to Change

The most important step you can take as you work toward eliminating your holiday credit card debt is to resolve to break the bad habit of overspending once and for all. In fact, if you will cut your spending in other areas you could free up additional funds to help you wipe out your credit card debt much more quickly. Paying off your credit card debt may not be easy and no one ever said that cutting spending is fun, but making a positive financial change is worth the sacrifice. Take control of your finances so that your finances won't control you.

 

michelle-black-credit-expert

Michelle Black is an author and leading credit expert with nearly a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.

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The Newest Credit Scoring Model: VantageScore 4.0

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The Newest Credit Scoring Model: VantageScore 4.0

To many people, FICO is king when it comes to credit scoring models. The majority of lenders, most notably those in the mortgage industry, rely either exclusively or at least heavily upon FICO scores as they evaluate the credit worthiness of new applicants for financing. However, with the introduction of VantageScore 4.0 in the fall of 2017 many lenders are starting to pay a bit more attention to this newest arrival to the world of credit scoring.

In truth, VantageScore Solutions (the company which creates and sells VantageScore credit scores) is not so new. It is only new when compared with the Fair Isaac Corporation (FICO). VantageScore Solutions, founded by the 3 major credit reporting agencies themselves in 2006, is actually over a decade old. 

Yet most lenders still prefer FICO scores. FICO was initially founded in 1956 and created its first credit scoring system in 1958. The credit bureaus themselves began to adopt FICO credit bureau risk scores between 1981 (Equifax) and 1991. According to FICO its scores are currently used by 95% of the largest financial institutions in the country.

VantageScore 4.0

Though the company is already dominate in direct-to-consumer credit score sales, VantageScore Solutions has been fighting for over a decade to dip further and further into FICO's lender-purchased credit score market share. This goal is achieved by convincing more and more lenders to purchase VantageScore's credit scores to use for risk analysis in prospecting, account management, and application reviews. The roll out of the 4th generation of its scoring model in the fall of 2017 will be just one more step toward this goal, but might be better described as a giant leap instead of a step.

The reason the release of VantageScore 4.0 is such big news is because it will be the first credit scoring model to consider trended data in the calculation of consumer credit scores.  Trended data, added to credit reports several years ago, allows credit card issuers to report a 24 month history of historical balances and payment amounts made by their customers. This historical data can show future lenders whether you are truly someone who pays off your credit card balances in full each month (aka a transactor) or whether you are in the habit of revolving an outstanding balance from one month to the next (aka a revolver).

Revolvers, especially minimum payers (consumers who only pay the minimum payment due on their credit card bills) represent a higher level of risk to lenders. In fact, according to a study conducted by Experian, minimum payers are 6 times more likely to have a future delinquency than transactors. TransUnion's study on trended data found that revolvers represent between 3 to 5 times more risk than transactors.

Including trended data in VantageScore 4.0 gives this new scoring model increased predictive power over previous generations of VantageScore and, arguably, FICO scoring models as well. In other words, this new scoring model is being touted as a more reliable way to predict credit risk. Predicting risk, after all, is why lenders purchase credit scores in the first place.

Advice for Consumers

Because of recent changes in credit reporting, especially the upcoming removal of many tax liens and judgments from credit reports and the removal of many medical collections as well, lenders and credit score developers are going to begin paying more attention to alternative credit data which is also predictive. It has always been important to pay off your credit card balances in full each month both from a credit scoring perspective and also from a financial perspective as well. However, with the consideration of trended data now in the works the importance of paying off your credit card balances has multiplied exponentially.

Of course implementing a new credit scoring model is very expensive for lenders. Due to the high cost it will likely be years before a majority of lenders begin using VantageScore 4.0. The same can be assumed for any yet unannounced but potentially forthcoming new releases from FICO which consider trended data for that matter.

As a result consumers do not necessarily have to worry about trended data impacting their credit scores for a while. Still, remember that when credit scoring models which consider trended data are finally adopted by lenders those models will be looking back at a 24 month history of your credit card payments. This means that the time to develop the habit of paying off your credit card balances monthly is now.

 

michelle-black-credit-expert

Michelle Black is an author and leading credit expert with over a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.

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Will Increasing a Credit Limit Help Your Credit Scores? 
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Why Do the Credit Scores I Pull Look Different Than the Ones My Lender Pulls?
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Where Do Credit Scores Come From?
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Preparing Your Credit for a New Mortgage
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My Debt Has Been “Charged Off.” What Now?

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My Debt Has Been “Charged Off.” What Now?

“Michelle, last year I lost my job and was unable to keep up with my credit card payments. The credit card accounts have been closed and the accounts are being reported as “charge offs” on my credit reports. I don’t know why, but the accounts are still showing outstanding balances. Since the accounts have been charged off that means that I don’t owe the debt anymore and the balances should be zero, right? What gives?!”

A somewhat common misconception which consumers may have is the idea that if a bill is charged-off then the debt is no longer owed. Unfortunately for the consumer, that is a myth. A charge off does not equal forgiveness of a debt.  Charge off is simply a classification or a category that creditors give to debt which they will be writing off as a loss for tax purposes. When a charge off notation appears on a credit report, it does not mean that the consumer no longer owes the balance. The balance may still be very much owed to the creditor or collection agency.

When a debt is charged off by the original creditor (typically once the account has become around 6 months past due), it is often sold or turned over to a collection agency. If you can afford to pay the debt before it is reported to the credit reporting agencies, you should do so. You can save yourself a big headache in the future by paying the account now.

It is also important to be aware of your rights concerning charged off debt. Take a look at the list below to protect yourself from “credit bullies” who are employing abusive or illegal collection tactics.

Know Your Rights

1. FDCPA (Fair Debt Collection Practices Act) -

Collection agencies are not allowed to harass you. They cannot call you excessively, threaten you, or call you at all hours of the night. Collection agencies cannot call your friends and family members in an attempt to embarrass you. There are a lot of other protections afforded to you under the FDCPA. If you have been called or harassed by a collection agency, it might even be in your best interest to speak with an attorney who specializes in FDCPA cases. In fact, feel free to contact us if you would like a referral to a reputable attorney in your area. If you have been harassed then there is a chance your attorney will even represent you on contingency with no upfront funds coming out of your pocket for attorney fees.

2. FCRA (Fair Credit Reporting Act) –

A. Re-aging is illegal.
Derogatory accounts are allowed to remain on your credit reports for 7 years from the date of default (when the original account became 6 months past due). If a collection agency changes the date of default on the original debt in an attempt to manipulate the date when an item is purged from your credit reports, that is known as re-aging and it’s illegal.

B. You have the right to dispute inaccurate, questionable, unverifiable, and outdated accounts.
If you believe that a collection account on your credit reports has been re-aged, you have the right to dispute the account with the credit reporting agencies. You can file disputes on your own, or with the help of a professional like HOPE4USA. You also have the right to dispute any accounts which you believe to be inaccurate or unverifiable. 

The best thing that you can do for your credit scores is, of course, to keep all of your payments on time. However, anyone using a little common sense can realize that most people never set out not to pay their bills. It’s not like consumers with credit problems just wake up one morning and say, “I think I’ll stop paying my bills today.” No, most people who get into credit and financial trouble do so due to unfortunate circumstances like job loss, illness, family emergencies, etc. Bad credit happens to good people every single day.

If you have made credit management mistakes in the past, there is good news. Bad credit does not have to last forever. CLICK HERE to download our free HOPE4USA Credit Report Toolkit for some expert advice on how to get started on your road to recovery today!

michelle-black-credit-expert

Michelle Black is an author and leading credit expert with over a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.

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Why Doing "Nothing" Can Do So Much Harm to Your Credit

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Why Doing "Nothing" Can Do So Much Harm to Your Credit

Ignorance is bliss...or so the saying goes. However, when it comes to your credit reports and scores being ignorant can be a truly horrible strategy which can have some seriously negative consequences as well. People generally ignore their credit for one of two reasons. First, many consumers with good credit assume that everything on their credit reports is fine and do not even bother to check their reports until their next loan application. The second most common reason why consumers ignore their credit is due to the fact that it is so bad that they feel overwhelmed and powerless to change their credit situation. Regardless of the reason, ignoring your credit is a really bad idea.

Why Consumers with Good Credit Need Still Need to Pay Attention

If you always pay your bills on time and maintain very low or even $0 balances on your credit cards then odds are high that your credit scores are probably in pretty good shape. The truth is that you have the right to expect your credit reports to contain accurate information. However, the reality of how the credit scoring system works is that mistakes on credit reports happen. In fact the Federal Trade Commission released a study in 2013 which proposes that there were around 40 million mistakes on the credit reports of US consumers. Although the Fair Credit Reporting Act does give you the right to expect accurate credit reports, errors still occur every single day. What you may not realize is that the responsibility to make sure you credit reports remain error free lands squarely on your own 2 shoulders.

Credit reporting errors can range from insignificant with little to no credit score impact to all the way on the opposite side of the spectrum where the wrong credit reporting error can wreak utter havoc upon your credit scores. Thankfully, there are several options which make it extremely easy for you to keep a close eye on your credit reports in order to ensure that they remain accurate.

Option 1: In 2003, thanks to the FACTA amendment to the Fair Credit Reporting Act, consumers were given the right to access all three of their credit reports completely free of charge once every 12 months. To access these free credit reports you simply need to visit AnnualCreditReport.com. (Not-so-fun-fact: an average of only 4% of these available free reports are actually claimed by consumers annually.)

Option 2: If you are wise enough to understand the importance of keeping a close eye on your credit reports then you will also realize that checking your credit reports once a year is not going to be often enough. The good news is that there are many free options available to access and review your credit reports throughout the year - though this option can be a bit time consuming due to the fact that truly free reports can generally only be accessed one credit bureau at a time.

Option 3: Finally, there are also several affordable fee based credit monitoring services which will allow you to check an monitor all 3 of your credit reports and scores simultaneously and easily.

Why Consumers with Bad Credit Still Need to Pay Attention

There is no question that credit problems can feel overwhelming and insurmountable. When faced with credit problems the desire to stick your head in the sand and ignore them can be very tempting. Unfortunately, ignoring credit problems does not make them go away but only keeps you stuck in the same bad situation for longer than necessary.

Whether you choose to work on resolving credit issues yourself or to seek professional assistance with your credit problems you should make the decision to do something. No matter how bad your credit reports are currently - even if you are one day out of a freshly discharged bankruptcy - there are always steps which you can take to begin moving your credit back in the right direction.

CLICK HERE to schedule a no-obligation credit analysis with a HOPE4USA credit expert to learn how to improve your credit reports and what HOPE4USA can do to help.

CLICK HERE to download our free credit repair toolkit - no strings attached. 

ron-lambright-credit-expert

About the author: Ron Lambright has been a credit expert for over 14 years and is the Executive Director of HOPE4USA - a company he helped to found after struggling to overcome personal credit issues on his own twice before. He is a regular guest on radio talk shows and is featured weekly as the premier credit expert at training seminars in the Charlotte, NC region and up and down the East Coast.  Ron is an expert on teaching consumers how to achieve  "loan ready" credit reports, improving credit scores, and an expert in the fields of business financing and business credit as well. You can connect with Ron on Facebook page by clicking here.

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