Credit Scores (Long-from MSN.com) - Posted by Pat

Posted by JPiper on May 31, 2000 at 18:25:49:

I do see that now…a little box that says “yrs school”…thanks for the correction.

However, I currently can pull credit scores without a 1003 on my buyer’s or tenants. So I gather from this that the credit score can be generated without the educational background.

In fact, I can pull credit scores without anything other than name, address, social security number and date of birth. No income, no education, no assets.

JPiper

Credit Scores (Long-from MSN.com) - Posted by Pat

Posted by Pat on May 30, 2000 at 12:47:26:

How lenders use your credit score
Credit scoring factors in your income and education as well as your credit history. You may never know your score, but you should know if you?re seen as a risk.
By Mary Rowland

Remember the old Jimmy Stewart movie, ?It’s a Wonderful Life?? It’s Christmastime in early 1940s small town America. Stewart plays a banker at a savings and loan who has loaned money to the poor to help them build decent homes. Now he faces ruin at the hands of a heartless Lionel Barrymore, who has found a misplaced bank deposit, called in the auditors and started a run on Stewart’s bank. But the “little people” who Stewart put his faith in prove him right. They stream in with their dimes and quarters and dollars to bail him out.

Fast forward half a century. A computer has replaced Jimmy Stewart. Whether you get a loan to buy a home depends on a computer-generated credit score that compares certain things about you. Things like how much money you earn, how long you’ve been using credit and whether you’ve made payments on time determine your credit worthiness.

“The lender wants to know, ?If I lend money to 100 or 1,000 or 10,000 borrowers with these characteristics, will 90% or 95% or 99% repay??” says Peter L. McCorkell, senior vice president at Fair Isaac, the leader in developing these scoring systems for lenders.

You won?t know the score
The trick here is you can?t find out your score. Fair Isaac and other scoring firms say that if they reveal the scoring system – and the exact criteria to determine that score – their services wouldn?t be needed anymore. What you can do, however, is get copies of your credit reports from one of the credit reporting agencies. Those reports won?t tell you your score, but they do tell you what lenders know about you and your borrowing history.

Based on that information, you can also make an educated guess about how the scoring system works. The scores that companies like Fair Isaac compile are sent to the credit reporting agencies as composite numbers. In addition to your salary and other factors mentioned above, here are some of the things that scoring agencies consider:

Your education level. It sounds arbitrary, but it?s true. A college-educated person is given more ?points? than a high school graduate, for example.

The number of years you?ve lived in a single location. If you?ve moved around a lot, you lose precious points. If you?ve moved because of a better-paying job, you can recoup some of those points if your salary has increased, for example.

The number of years you?ve worked for a single employer. Scoring agencies like people who are stable. That?s why they assign more points to people who?ve lived in a particular place for several years or who?ve worked for a single employer for many years.

Are you a homeowner? If you are, you get additional points. Renters are considered more transient and less reliable to repay their loans.

If all of this sounds arbitrary or unfair, remember that scoring systems have allowed department stores and other lending agencies to offer those ?on-the-spot? credit approvals. You know the routine. You fill out some basic information on a card and five minutes later (if the computer is working properly), you?re either approved or disapproved for a loan.

Credit scoring spurs growth
McCorkell argues that credit scoring has helped fuel the economic boom of the 1990s because it allowed those who grant credit to grant much more of it – 20% to 30% more, by his estimates – than they otherwise would have.

?Today more credit at lower rates is available to a broader spectrum of American consumers than anyone could have imagined just a generation ago,? he says.

Edward P. Howard, an attorney at the Center for Law in the Public Interest in Los Angeles, agrees that credit scoring has helped provide economic growth without inflation. But he worries about what can go wrong. There are a lot of elements stored in the computer.

?Even a fairly simple credit scoring system is likely to have 10,000 or 20,000 different possible combinations,? McCorkell says. That’s a lot of information to keep straight. What if it gets scrambled up?

OK, Howard knows it isn’t realistic to think that Jimmy Stewart is going to loan any of us the money to buy a home today. But he’s worried about your financial viability – your ability to borrow money, get a job, buy a home or rent an apartment. It all depends on a database that?s supposed to be fail-safe. Howard’s favorite movie is “Dr. Strangelove,” the Cold War satire in which a mad U.S. general finds a loophole that allows him to launch a nuclear strike against the Soviet Union. So back in the real world, could this one credit database have a flaw that could destroy your hopes of buying a new home?

Loan criteria also top secret
There are no mad generals involved in credit scoring. But both the score and the statistics that go into it are top secret. If everyone knew how the scoring was done, no one would pay his company to do it, McCorkell says. Further, if people understood the scores, they could cheat. “If a borrower knows he needs 10 more points to qualify for a particular loan and that closing two bank card accounts will raise his score by 12 points, he can go out and close two accounts today,” McCorkell says.

As it is, though, if you get a bad score and you’re turned down for credit, you can’t find out what elements pulled it down. Some things are obvious. A high income earns more points than a low income. But minorities get lower scores, too; a controversial issue that McCorkell insists does not lead to rejection of credit applications by minorities. “Minorities and low-income borrowers present a slightly larger risk,” McCorkell says.

The score is then transmitted to the lender, which makes the ultimate decision on whether a credit application is approved or denied. Lenders insist that the scoring system does not unfairly hurt minorities, but simply reflects overall lending histories.

When he was asked how an applicant can improve his or her credit score, McCorkell replied that you “shouldn’t focus on credit scores, but on the responsible use of credit.”

But, of course, we will try to improve our credit scores, won’t we? There are certain things we do know. Fewer credit cards are better than several cards. Paying on time is a must.

In “The Ultimate Credit Handbook,” Gerri Detweiler says, "The more you look like other people who pay their bills on time, the more likely it is the computer will approve your application."
Some of the things that weigh heavily are stability – both at home and on the job – and a good payment history.

The scoring system looks at how close you are to the limits on your cards, what you spend money on and how much you ask for in cash advances. Pay attention. But don’t despair.

“Even if you are head over heels in debt,? Detweiler says, ?you can rebuild your credit and improve your score.”

Re: Credit Scores (Long-from MSN.com) - Posted by Pat

Posted by Pat on May 31, 2000 at 12:41:01:

Thanks for all of your comments and thoughts. Jim, I agree with all you said.

Personally, I hate these scores and feel that they are totally unfair.
If you live within 15 sq miles for the past 20 years, but move to better homes, or neighborhoods you are given lower scores.
If you work for one company 20 years, then retire and work at a number of small companies, changing from one to the other over a period of 7 or 10 years, you are considered unreliable or whatever=low score. Yet, in some of the newer professions it is required to change positions in order to learn, grow professionally, gather experience.

Re: Credit Scores - Posted by JPiper

Posted by JPiper on May 30, 2000 at 19:41:11:

First, thanks for the post. I wanted you to know I don?t want to ?shoot the messenger??.but really I thought this article was a bunch of palp (whatever that is).

Here?s one quote I loved: ?Further, if people understood the scores, they could cheat. “If a borrower knows he needs 10 more points to qualify for a particular loan and that closing two bank card accounts will raise his score by 12 points, he can go out and close two accounts today,” McCorkell says.?

How on earth is ?closing two bank card accounts? cheating? One would think that if a lender?s goal is to reduce defaults, that they would love to see a guy taking steps to improve himself in the eyes of those who think that they can predict defaults. If that means closing a couple of accounts then why should it be a secret?

What kind of ?game? is it that the players don?t know the rules but the ?referrees? do? It would seem to me that if everyone clearly understood the rules, took steps to improve their credit scores, that the result would be a lowering in the default rate (that is, if the score really has any predictive value, which we are led to believe that it does). Don?t we always set forth a clear set of ?rules? so that people understand the appropriate behavior? What if two football teams lined up on the field?but no one bothered to tell them the rules of the game? We simply observed their behavior, arrived at a score after 60 minutes, but didn?t tell them how we arrived at it. Maybe we could say ?Get out there boys, play hard for 60 minutes?.but we don?t want to tell you the rules because you might change your behavior, and that would be cheating.?

A few other areas that amused me. Educational background. What credit application asks for educational background? Certainly not the 1003. How then is this factor used?or is this writer simply putting out misinformation.

Further, I assume I have a credit score, although I have no idea what it is. But I can guarantee that no lender out there knows my income. Income plays a part in the credit score?

Whenever the next downturn arrives, I expect to see the banking community belching with bad paper. Why? Because they made the assumption that they could predict human behavior via computer?that a PERSON with reasoning ability didn?t have to actually look at the credit file, to see what meaning could be derived from it. Ought to be some fun.

JPiper

Re: Credit Scores (Long-from MSN.com) - Posted by chris

Posted by chris on May 30, 2000 at 14:33:25:

http://www.creonline.com/wwwboard/messages/64847.html

Please see the link above and its related string for info. It is currently the law to not allow you to see the scoring info. Also go to www.creditinfocenter.com for some insight into the formula for computing this.

Contact your elected representative to get the Fair Credit Full Disclosure Act enacted.

-Chris

Re: How do they determine your income? - Posted by Joe Simmons

Posted by Joe Simmons on May 30, 2000 at 14:29:25:

Why does your credit score factor in your income? What happens if the amount they report is inaccurate(ie: your income has risen)? Educational nor personal income are not shown on my credit report from the Credit Bureau.

Re: Credit Scores - Posted by dewCO

Posted by dewCO on May 31, 2000 at 18:16:21:

Yeah the education is on the 1003 with “how many years of”. Also asks your age. Also asks race and sex. All discriminatory questions, but we are told, they aren’t used to discrimate, but to “monitor” lenders so they don’t discriminate! Well maybe that’s the way it was before credit scoring came along(?).
Also when one puts their income on a 1003, I assume some how it gets to the credit reporting bureaus and that’s how your info. is updated, along with addresses.

Re: Credit Scores - Posted by Mark-NC

Posted by Mark-NC on May 31, 2000 at 14:03:23:

Jim,
You are absolutey right. I don’t know how thet derive any kind of score from income,job stability or education. How do they even know???

I pull 100’s of credit reports a year and the only 3 pieces of information I need is Name, Address and SS#.

To Me the scoring syestem is very unfair and unrealistic at time’s. As an example I pulled a credit the other day the applicant had only one trade line, nothing else good or bad. It was a new car loan only 3 months old this individual ended up with a beacon score of 657. Then on the other side of the fence I pulled another individuals credit he had 7 open accounts some of them were maxed out not all of them, But over the period of years of credit there was never any lates or other problems and he ends up with a score of 585.

Now if I was a banker I would feel more secure with the second guy but unfortunately the industry is becoming credit score drivin.I also believe we have the right to know what we have to do to keep our score up. Although I have a good idea of what helps I don’t know the whole story. I can personally raise my score any month just by paying any revolving balances down to have or less if I need to raise my score for any reason.

I could go on,the scoring system really bugs me. As another example. You can get someone with a good 600 score and you can get someone with a bad 600 score. What I mean is the score dosn’t reflect the true credit. What may happen is a mortgage lender may say well the score is high but the credit is not good enough for that score so we can’t get them what your after. On the other hand if someone with really good credit ends up with a 600 score the lender may say sorry this is all we can do because they only have a 600 score.

Mark

This is a genius post (nt) - Posted by Mark (SDCA)

Posted by Mark (SDCA) on May 31, 2000 at 10:41:33:

nt

Re: Credit Scores (Long-from MSN.com) - Posted by JohnE

Posted by JohnE on May 30, 2000 at 19:52:17:

Did you see this article by Kenneth R. Harney

Re: Credit Scores (Long-from MSN.com) - Posted by dew

Posted by dew on May 30, 2000 at 19:00:30:

OK good idea. If we can do anything to help that will be good. I can understand the point that people would do things to adjust their score if they knew how, but keeping people totally in the dark isn’t helpful either.

I’ve seen an 8 yr. old discharged BK who has paid 2 mortgages on time since the BK for the last 4 years and his score hasn’t gone up at all!! (And all his other payments were on time too.) So what’s he to do? Obviously, he’s not too thrilled with getting a lot of credit cards, but apprently that is what he probably has to do to raise his scores. But the on time mortgage payments should be bringing it up after 4 years and they apparently aren’t.

Then I saw a 720 avg. score go to a 660 for a $120 collection she didn’t know was there, because the insurance company was supposed to take care of it!!!

So these models aren’t very fair.

Re: How do they determine your income? - Posted by Brandi_TX

Posted by Brandi_TX on May 31, 2000 at 24:23:47:

They do not keep your income “on file”. Usually when your score is requested, the person (car dealer, mtg co., etc) is imputting how much YOU told them you make on your application. This info is factored into your score, then if your score is high enough to be considered for a loan, the lender relying upon the score will ask you for verification of your stated income.

Brandi_TX

One More Thing - Posted by JPiper

Posted by JPiper on May 31, 2000 at 18:37:19:

By the way, race and sex are asked, but “you are not required to furnish this information…”. However, if you don’t furnish it the lender is “required” to note both race and sex based on “visual observation” or “surname”. LOL. Sure hope the lender doesn’t get this one wrong based on “surname” as an example, or it could affect the FICO.

JPiper