Tuesday, December 16, 2008
Can The Credit Bureaus Recreate Archive Credit Reports and FICO Scores

All three of the credit bureaus have the ability recreate archive credit reports and, hence, any of the scoring models that they sell.  The credit bureaus archive their databases periodically for the purposes of disaster recovery and litigation.  There is potentially tremendous value in your case with the use of this old credit data.  For example...

David is suing a bank for what he feels is incorrect credit reporting, which is damaging his FICO scores and causing him to be declined for loans or approved but at poor rates and terms.  He hires a credit expert witness who advises him that it's in his case's best interest to pursue archive credit data and credit score information in order to build a chronology of events and a pre/post credit score table that clearly shows the damage being caused by the negligent credit reporting.

The credit bureaus will clearly not hand this information over because it's likely that you're suing one of their clients, and perhaps one of their best clients.  This will take an order from the court but it can be done and it's generally well worth the effort.

The alternative is documentation that the consumer has kept over time the he or she can produce in lieu of the archive credit reports and credit scores.  This is yet another good reason for consumers to claim their credit reports periodically as is their right under Federal and possibly state credit laws.

 

 

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Monday, December 08, 2008
Is FICO The Only Score That Matters?

The common belief is that the FICO score, developed by the Fair Isaac Corporation, is the only credit scoring option for lenders.  This is untrue.  In fact there are hundreds of other credit scoring models used in consumer lending this very day.  The question is less about exclusivity and more about commonality.

All three of the credit reporting agencies, Equifax, Experian and TransUnion, build their own credit scoring models.  And, these three credit bureaus banded together recently to form VantageScore Solutions, the creator of the VantageScore.  There are also a number of smaller credit model developers that will build custom scores for lenders.  And, of course, many lenders employ a staff of model developers who build their own credit scores in house for their own use.

Having said that, FICO is still by far the dominant scoring model in the lending industry.  They boast having most of the largest banks, telecom providers, Fortune 500 companies, government agencies, and insurance companies as clients.  Their software is used control the management of two thirds of the world’s credit cards.  They are, simply put, the 800-pound gorilla. 

You’ll read stories and blog posts that talk about how Vantage is a threat to Fair Isaac’s market share and that consumers should attempt to improve their Vantage Scores along with their FICO scores.  What they are missing, understandably, is what determines a credit risk score are essentially the same things regardless of the model.  You can’t have a good FICO score and a bad VantageScore.  And you can’t have a good VantageScore and a bad FICO score. 

The assertion that you can improve one over the other is simply untrue.  FICO, while being the reigning world champion credit score developer, doesn’t have a monopoly on research.  This means that any credit score developer worth his or her salt will discover during the development research that payment performance, debt, age of credit, diversity of credit and inquiries are all predictive and deserving of inclusion into any credit scoring model.  What this yields is a redundant strategy to improve any credit risk score; avoiding negative information, maintaining zero or modest debt, shopping for credit responsibly, having a well aged credit report and having experience managing a variety of different types of accounts.

Yes, all credit scores are created differently.  And yes, all credit scores are going to have different weighting logic.  And no, you can’t rely solely on lesser-used scores such as Vantage to make large-scale assertions in consumer lending or litigation.  But, what is true is that regardless of whether your lender uses FICO, Vantage, E-DAS, ERABM, Delphi, GRAM, BNI, TransRisk, or any of the other credit scoring models available to lenders, the consumer’s credit management practices should be the same.

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Tuesday, December 02, 2008
Identity Theft: Credit Monitoring Solutions

Many people have been hearing about Credit Monitoring services lately. Between the financial advisors on TV and radio, to company advertisements, to internet marketing, it seems as though there is an ever increasing number of options and opinions regarding credit monitoring solutions. Primarily, there are three different options to consider.

All three major credit bureaus (Equifax, Experian, and Trans Union) plus a few third party companies will offer online credit monitoring. You generally have the choice between monitoring a single credit bureau’s file or, for an additional cost, have 3-in-1 monitoring of all three files at the same time. The cost is around $10-$15 a month. With these solutions, you will receive an alert within 24 hours of your credit file being accessed notifying you of activity. This credit file alert can come via email or text message, depending on the service. If you initiated the credit transaction, you would simply delete the alert as being a false positive. However, if you did not initiate the transaction and are in the early stages of identity theft, you would be able to proactively notify the company that accessed your report and stop the transaction before any credit has been issued.

Some third party companies will provide an identity theft protection service via the action of adding fraud alerts to your credit file with all three bureaus. A fraud alert is designed to notify the credit grantor that you are a potential fraud victim and to contact you directly before issuing any new credit in your name. When contacted, you would be able to advise the credit grantor that you did not initiate the request for credit and stop the application process. Fraud alerts remain on your file for 90 days at which point the identity theft protection company would request a new fraud alert be added to your files. This service generally costs around $10 per month although you do have the option of contacting the three credit bureaus directly every 90 days and have a fraud alert added for free.

If you are interested in monitoring your credit history for free, you also have the option of requesting a copy of your credit report. All US citizens have the right to receive one copy of their credit report every year from each of the three credit bureaus. Many people recommend that you space out these requests in four month increments so that you always have an update on your credit activity that is no more than 4 months old. If you find new accounts or inquires on your file that you did not initiate, you can dispute these items with the credit bureaus and credit grantors. While this is a free option, it is also important to realize that this option will generally inform you once identity theft has already occurred, not in advance. While the identity theft will be fairly recent, you will still need to expend the time, energy, and expense in cleaning up your identity and having the accounts removed from your credit file. Also, this assumes that all credit grantors report information to all three credit bureaus. While many credit grantors do report to all three bureaus, some do not, which could expose you to an identity theft that is more than 4 months old once discovered.

Whichever form of credit monitoring you choose, it is always a good idea to have knowledge of your individual credit profile and its activity. This way, you can at least avoid finding out about a theft of your identity in the worst possible manner……..when you are sitting in front of your lender applying for a new mortgage or auto loan or when contacted by a collection agency.

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