Credit Scores Are a Scam Forcing You to Always Be in Debt

If you live in the United States you are no longer a person. In the eyes of banks, employers, landlords, and insurance companies, you are a number. A three digit number to be exact. Our car and home insurance premiums went up because of our credit score. We had too much available credit (old unused and never closed cards) and were deemed a higher risk EVEN THOUGH we never missed an insurance premium payment. This system is a huge scam and there is nothing you can do about - except get out of debt and pay with cash. Get this though. Now that we have no debt at all, not even a mortgage, our credit score is lower because we haven't opened a line of credit recently! I could care less what my score is, except for the fact that the state I live in requires car insurance. So if I want lower premiums I have to go into debt. I'm damned either way! - The Credit Score Scam, subnixus.com, February 11, 2006

If you thought it was hard to qualify for loans and obtain credit in 2010, wait until 2011, when lenders start using freshly updated, more rigorous versions of two popular credit-scoring systems. Fair Isaac, creator of the widely-used FICO score, recently rolled out an enhanced version of one of its key credit scores, the FICO 8 Mortgage Score. This new score may make it tougher for many consumers to secure home loans.Meanwhile, another credit score growing in popularity, the VantageScore, is also undergoing significant modification and will be available to lenders starting in January 2011. Both credit-scoring systems have been revamped to better account for consumer behavior in the wake of the housing crisis and the Great Recession. Specifically, the two scoring systems have fine-tuned their predictive powers, and now aim to help lenders determine who is likely to engage in a strategic default on a mortgage. - New Credit Scoring Rules to Make Qualifying for Loans Tougher in 2011, Daily Finance, November 30, 2011

The New Credit Score Rules

According to a July 6, 2011, press release from the Board of Governors of the Federal Reserve Board: "The Federal Reserve Board (Board) and the Federal Trade Commission (FTC) on Wednesday issued final rules to implement the credit score disclosure requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act. If a credit score is used in setting material terms of credit or in taking adverse action, the statute requires creditors to disclose credit scores and related information to consumers in notices under the Fair Credit Reporting Act (FCRA)."

Regulations mean a free score may actually be free, but only in certain circumstances. It's been hammered into most consumers that credit reports are free. Now in some cases, credit scores are free as well. Under the rule that went into effect Jan. 1, lenders have two ways to meet new disclosure requirements. One option is to furnish the borrower with a copy of the credit score that was used to make the decision. Consumers should also be provided with the range of possible scores so they understand where they rank nationally. Additionally, the lender must disclose which of the three credit bureaus — Equifax, Experian or TransUnion — provided the score. However, lenders have another option that doesn't include the disclosure of the applicant's score. The alternative is to provide a letter stating the borrower was given a less-than-favorable rate because of his or her credit risk. This notice must also disclose which credit bureau provided information to the lender. But on July 21, another regulation will shut that loophole. That's when lenders will no longer have a choice in the type of notice they provide. If a credit score is used to deny a loan or give unfavorable terms, the lender must disclose that score to the consumer. The requirement was part of the financial overhaul known as the Dodd-Frank Act last year. - The new rules for getting your credit score, Associated Press, April 6, 2011

August 29, 2011

Forbes - If you only read one article about credit scores this year, read this one.

The average credit score nationwide is 666, according to CreditKarma.com. That's not only an ominous number, but can be a costly one.

Based on CreditKarma.com's data, the trend amongst lenders shows that a 660 credit score is the threshold to be approved for a mortgage, auto loan and unsecured credit card. Digging deeper into consumers' credit health, nearly 40% of consumers have a credit score below 660. That means 4 out of 10 Americans would likely be denied for a mortgage and auto loan, charged sky-high interest rates, and only qualify for a secured credit card.

With credit scores controlling consumers' access to credit and the prices they pay for lending products, Americans must take control of their credit health.

In the fine line between approval and denial in lending, consumers deserve to know more so they can do more about their credit health. While recent federal regulations have nudged open the door on consumers' access to credit, it's not enough. Consumers must be empowered to actively manage their credit, not just when they are transacting but also in their daily financial life.

As legislation and economic changes evolve the credit industry, consumers' access to credit scores must be broadened. Here's what you need to know about credit now.

1. It's your consumer right to get a free credit score! Thanks to a recent federal regulation, consumers who are denied on a credit application or receive higher interests due to their credit profile are entitled to see their credit score for free. This only applies to declined consumers, so it begs the question: why aren't all consumers getting their credit score for free? With such significant impact on accessing and pricing of financial products, free credit score access should be a right of all consumers. We may see government efforts to provide free credit score access on the horizon. Once a mysterious and proprietary secret of the credit industry, credit scores are becoming a powerful tool in the hands of consumers.

2. Standards for accessing credit are always in motion. Once upon a time, the general "good" credit score standard was 660. During the recession's credit crunch, the standard jumped to 720. It appears some credit card issuers are again expanding their credit standards and approving lower credit tiers. Some mortgage lenders say a 720 credit score is needed to get the best mortgage rate, while others say 750 is the new standard. Additionally, lenders are increasingly focusing on other credit details aside from your three digit score. For example, a consumer can have a 780 credit score, considered in the excellent range, and be denied on a credit card application because their credit history is simply not long enough. It'll take time and economic stability till lenders comfortably agree on credit score standards; hopefully that keeps you on your toes and improving credit health everyday.

3. It's not enough to check your credit score. One drawback of the federal regulation is its limitations. Giving consumers access to their credit after being denied is too little, too late. Credit scores can fluctuate suddenly, so a single snapshot isn't enough. What's necessary is for consumers to monitor their credit. Whether you have a 550 or an 800, tracking trends in your credit use and credit score helps identify areas to improve, habits to avoid, and most importantly, makes you conscious of how day-to-day financial decisions impacts your credit health. You might need several months' cushion to polish up your score, so begin monitoring your credit as soon as you plan to buy a home or car, or apply for a loan or credit card. If you aren't applying for credit but currently have a credit card, it's still imperative to stay on top of your credit health. Issuers periodically do an account review, and if any new credit blemishes appear, it could affect your card terms. Proactively use credit score monitoring services so you, and not lenders, are the first to know about recent changes on your credit.

4. Expect credit score differences. The federal regulation also shined light on the fact that there are dozens of credit score models in use. While many consumers consider FICO to be the "real" score and everything else to be a "FAKO", the truth is that every lender chooses differently: there are the credit bureau-specific models, the VantageScore, the FICO score, scores specific to lender type like mortgage, auto and credit card issuers, and even models particular to certain banks. If your TransUnion score and VantageScore have a 40 point difference, there isn't a "more accurate" score. It's similar to weighing yourself at home versus the gym or the doctor's office; the scales show different numbers because they're calibrated differently, but ultimately, they all measure your weight. Rather than obsessing over the three-digit score, focus on the risk factors involved such as your debt, number of accounts, and credit use. Just like diet and exercise will reflect in your weight across all scales, taking action to holistically improve your credit health will reflect across the broad spectrum of credit score models.

While the recent federal regulation is a positive move for consumers, lenders have already found loopholes, reports SmartMoney. For example, if the lender uses its own scoring model, they aren't required to disclose that credit score to consumers. Also, insurance companies, which also use a credit score model to evaluate customers and price premiums, are excluded from this regulation and aren't required to disclose credit scores to consumers who are charged a higher premium.

As the Consumer Financial Protection Bureau stretches its reach and more financial reform finds its legs, consumers must keep challenging Uncle Sam to keep the heat on the financial industry when it comes to credit score access. Consumers must also keep putting in the legwork to build healthy credit and keep an eye on their credit score.

We're headed in the right direction when it comes to consumers' access to their credit score. But don't walk away from this topic just yet; we barely have our foot in the door.

The Credit Score Scam

April 11, 2008

The Real Truth About Finance - Most people think having a good credit score is necessary. This is the most successful marketing lie that exists in the financial industry. It only matters if you borrow money.

Unfortunatey landlords, insurance companies, and various other companies have started using it as a guide. It is the lazy mans evaluation of a person's creditworthiness. Unfortunately, since there are so many errors on credit reports it has become an unreliable source of evaluating creditworthiness. Getting these errors corrected is a formidable task. While you are correcting them, more errors appear. It is a losing battle.

Despite what most people think, the credit bureaus don't work for consumers, they work for creditors. They will not accept any information from a consumer without undisputable proof, while the creditor just simply needs to make a claim and it is slapped onto your report unverified.

What's more, the scores themselves have now become a way to rip off consumers. There is the FICO Score (considered the standard), and then each credit bureau has their own proprietary score. They have started giving away "free" credit reports, which are little more than bait for subscriptions. The consumer thinks they are purchasing accurate information, when each bureau is likely to have vastly different information, and the score they give looks higher than the actual FICO score. There is a lawsuit in progress attempting to address this.

You even have to be careful about who you get your financial advice from. Suzy Orman is in bed with Fair Isaac and touts the value of a good credit score because she makes money when she does. However, Fair Isaac has recently settled a class action lawsuit against them involving Suzy Orman and her "FICO kit" for claims that they violated the federal Credit Repair Organizations Act and various state laws. They got away with providing "free" 3 to 6 month subscriptions. Ironic, since the FICO score marketing is all about improving your score, yet the scores continue to be fraught with countless errors, helping them continue to sell credit repair for their own mistakes.

The truth is that if you don't borrow money, the FICO score formula gives you a poor rating. In actuality, you are the lowest risk. Lenders who pay attention to what they are underwriting will see this. The score means little in the end with lenders who pay attention who they are lending to. As for the others — the landlords, the insurance companies, and employers — you can simply point out the errors and usually get past this screening. If you don't borrow money and tell them this is your policy, they should think highly of you regardless of the zero FICO score.