credit score

Credit Scores 101

This week on the show we’re taking you to credit score boot camp with credit guru Gerri Detweiler.

Helping consumers find reliable answers to their credit questions has been the theme of Detweiler’s work for the past 20+ years. Currently Head of Market Education for Nav, she helps individuals and business owners navigate the confusing world of consumer and small business credit.

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As an expert on credit issues, she has been interviewed for more than 3,000 news interviews including The Today Show, Dateline NBC, The New York Times, USA Today and Reader's Digest. She has also testified before Congress.

Nearly two years after credit monitoring company Equifax announced that a “Cybersecurity Incident” had exposed personal information of 147 million Americans, it will pay at least $575 million, and potentially up to $700 million, to end a federal, state, and consumer claims against it.

With breaches like Equifax happening on a seemingly regular basis, it’s more important than ever to keep a close eye on your credit score.

And don’t forget to review your credit report every 12 months at AnnualCreditReport.com. If you find an error, report it immediately and stay on top of the process, as a lower score will cost you more to borrow.

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CBS This Morning: FICO Credit Score

There will soon be a new way to calculate your credit score. The company behind FICO, the country's most widely used credit score, is launching the Ultra FICO Score early next year. It looks at cash accounts and banking behavior to determine if you are able to pay back a loan or credit card balance. I joined CBS This Morning to discuss what it could mean for your money.

Have a money question? Email me here.

#327 Credit Scores and Identity Theft with John Ulzheimer

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We're keeping this blurb here for a while as a reminder that there's a new place for Jill on Money content - YouTube!  Seems like a no-brainer, but sometimes it takes a little outside help (h/t to JOM friend, Joe A!) to recognize the obvious.  So don't freak out.  Going forward, we're going to put all our radio and podcast content on YouTube! It'll be easier for you to navigate and listen to past shows, because everything will be in one place.  Just click any of the links below and you'll be able to listen to this week's show as well as anything else you see that might interest you, including all the Better Off podcast content if you haven't been listening. Let us know what you think by emailing us at askjill@jillonmoney.com.

CLICK HERE FOR LATEST SHOW ON YOUTUBE

June 10 Download Hour One Here

In hour one, Freddy from Houston made Jill on Money show history: for the first time, a fellow CFP called me, the Senior CFP Board Ambassador, for advice! Freddy is a great saver, so great that his wife thinks he may be going overboard, robbing them of a little fun during their pre-retirement years.  Do I side with Freddy or his wife? You'll have to listen for the answer! But one thing is for sure, no matter how much you think you know or how qualified you are, it never hurts to get a second opinion.  Often times a third party will see things that you don't.

CLICK HERE FOR LATEST SHOW ON YOUTUBE

June 10 Download Hour Two Here

In hour two we brought back our old pal and credit score guru John Ulzheimer.  The credit score world is a rapidly changing one, and a big change is coming in July with NCAP, the National Consumer Assistance Plan, an initiative launched by the three big consumer credit reporting companies, Equifax, Experian and TransUnion. The goal of NCAP is to make credit reports more accurate and make it easier for consumers to correct errors on their reports. Bottom line: NCAP will mean that millions of people will see their credit scores improve. John also described how Vantage Score's new use of trended data could change the credit score business in the years to come.

John also helped demystify the scary topic of hacking.  We've all been there...we've all had our credit card compromised at some point.  If and when that happens, what steps should you take and what should you do to prevent it from happening again? Will checking your credit report on a regular basis help?

Thanks to everyone who participated this week, especially Mark, the Best Producer/Music Curator in the World. Here's how to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

#282 Credit Report Reform Update

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Have you ever tried to correct an error on your credit report? If so, there is good news: the credit reporting industry is about to change dramatically. Earlier this year, the three main credit reporting agencies -- Equifax, Experian and Transunion -- agreed to a multi-phase settlement with the New York Attorney General. This fall, the agencies begin phase one of being more proactive in resolving disputes and changing the way they report on unpaid medical bills. To help untangle the new reform measures, we asked nationally-recognized credit expert John Ulzheimer to come back on the show to tell us what's going on.

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Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 230 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

As a reminder, the three main agencies report your information to the scoring companies. According to FICO, the company behind the most widely used credit score, the most important factors are:

  • 35% Payment History
  • 30% Total debt outstanding, which takes into account how many accounts you have and how close you are to your credit limit
  • 15% Credit history
  • 10% Credit Mix
  • 10% Number of inquiries—specifically those generated when you are seeking to increase your borrowing, perhaps because you’re shopping for a mortgage, car loan, or student loan.

John also reminds us that identity theft is the NUMBER ONE white collar crime. Criminals are looking for your name, address, date of birth and social security number. With that information, they can wreak havoc on your financial life. To help defend yourself, John recommends the following steps:

  1. Minimize broadcasting your personal information online
  2. Check your credit report monthly
  3. Sign up for free credit monitoring

Thanks to everyone who participated this week, especially Mark, the Best Producer/Music Curator in the World. Here's how to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

#236 Credit Reform with John Ulzheimer

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There are big changes afoot in the credit reporting industry-credit expert John Ulzheimer joins the show to explain what consumers need to know! While we had him, John provided identity theft protection tips, which are especially important as we look towards the holiday season frenzy!

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John (aka "the Credit Czar") explained the new credit reporting changes that will help consumers, why it is important to check your credit report (only 4 percent do it!), how medical debt will be handled in the future and how we can be the best stewards of our personal information. As John said, there is "NO SUCH THING AS SECURE DATA!"

We also talked to Jeff and Eric, both of whom are in their early fifties and trying to strategize about retirement.

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

Credit Reporting Reform: What You Need to Know

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It’s been nearly 60 years since the Fair Isaac Corporation (FICO) started on the premise that data could be mined and used to inform business decisions. FICO honed the score and currently sells it to banks, insurers, retailers and credit card companies. Today, FICO score ranges from 300 to 850 and are based on data provided by the nation’s three credit reporting agencies (TransUnion, Experian and Equifax). Borrowers with scores above 750 are generally considered excellent, while scores below 650 are considered poor.

The most important factors that determine your score are:

(1) Payment History (including especially paying bills on time) accounts for about 35 percent.

(2) Total debt outstanding takes into account how many accounts you have and how close you are to your total credit limit. It makes up 30 percent of the score.

(3) Number of inquiries, which are broken into "soft", for preapproved offers; for insurance or employment purposes; and for when you check your own credit report or score. Soft inquiries, which do not hurt your score. Hard inquiries, like when you are shopping for a mortgage, auto or student loan can count against you and are responsible for about 10 percent of your score.

(4) The mix of credit (credit cards; installment loans like mortgages or car loan, and/or a student loan), contributes about 10 percent.

(5) Credit history – the more established your credit history, the better. This accounts for about 15 percent.

The ubiquitous use of credit scores makes their accuracy all the more important. If scores are lower, due to bad data or error-ridden reports, a consumer’s cost of borrowing could be higher than it should be or their living arrangements or job prospects could be negatively impacted.

After the Consumer Financial Protection Bureau conducted a 14-month probe, which found that it is notoriously difficult for consumers to correct credit report errors, the State of New York led the charge on reforming the credit reporting agencies. In a sweeping settlement, credit bureaus will make sweeping changes to everything from the credit reporting format they will accept from lenders to how they conduct investigations of disputed items to how and when they'll accept medical collections. The settlement will be implemented in three phases, starting this month and concluding by June 2018.

The highlights of phase one include a big change for consumers: bureaus cannot refuse to accept a consumer's dispute simply because she does not have a current copy of her credit report. Additionally, if the bureaus receive a dispute from a consumer that contains documentation, which supports the consumer's dispute, they must modify the information accordingly or fast track the dispute to an employee who is empowered to make the change as requested by the consumer on the sole basis of the documents they provided.

This so-called “empowered agent” provision of the settlement underscores the importance consumers providing supporting documents with their disputes. Otherwise the credit bureaus will simply contact a collection agency and take their side with respect to the disputed information.

In addition to removing errors from your credit record, there are a number of steps to take to improve your score. The most important is to pay your bills on time. According to FICO, 96 percent of people with excellent credit (above 800) pay their bills on time. (Most lenders will not report a late payment until you are 30 days late.)

You should also keep your total balances in check. Consumers with the best scores use just 7 percent of their revolving credit lines, but anything below 30 percent is considered acceptable. Apply for new credit judiciously and don’t close accounts—just don’t use them. Remember that co-signing a loan counts in this calculation. Maxing out a credit card could cost you as many as 45 points), according to FICO, even if the amount you owe is small.

Finally, stay away from credit repair pitches. There's nothing a so-called “credit repair clinic” can do that you can't do on your own.

 

Keeping Score on Credit

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The use of credit scores and reports dates back nearly 60 years. In 1956, engineer Bill Fair and mathematician Earl Isaac formed the Fair Isaac Corporation (FICO) on the premise that data could be mined and used to inform business decisions. Two years later, the company rolled out its first credit scoring system. FICO honed the score and currently sells it to banks, insurers, retailers and credit card companies. As the company declares on its web site, the use of its data and mathematical algorithms “to predict consumer behavior has transformed entire industries.”

The current FICO score ranges from 300 to 850. Borrowers with scores above 750 are generally considered excellent, while scores below 650 are considered poor. The three most important factors that determine your score are: Payment History (and especially paying bills on time); total debt outstanding, which takes into account how many accounts you have and how close you are to your credit limit; and the number of inquiries made into your credit file. Inquiries are broken into "soft" (for preapproved offers; for insurance or employment purposes; and for when you check your own credit report or score) and “hard” inquiries, like when you are shopping for a mortgage, auto or student loan can. Soft inquiries do not hurt your score, while hard ones count against you.

The use of credit scores was less important in the run up to the financial crisis, when in the year of easy credit, it seemed like anyone with a heartbeat could borrow money. But in the aftermath of the Great Recession, financial institutions would only lend to the best borrowers with the highest scores.

Not only has the FICO score has transformed businesses, it also has assumed a major role in the financial lives of consumers. Credit reports and scores are being used for more than borrowing and lending. Landlords often use credit data to research potential tenants; and in many states, it is perfectly legal for prospective employers to check credit.

The ubiquitous use of credit scores makes their accuracy all the more important. If scores are lower, due to bad data or error-ridden reports, a consumer’s cost of borrowing could be higher than it should be or their living arrangements or job prospects could be negatively impacted. Unfortunately, the Consumer Financial Protection Bureau conducted a 14-month probe, which found that it is notoriously difficult for consumers to correct credit report errors.

As regulators continue to oversee the rating and scoring industries, there could be good news for millions of consumers with shaky credit. FICO is testing a new product, which is calculated using consumers’ payment history with their utility companies. You probably didn’t realize that over 70 cable companies, cell phone companies and utility providers already contribute to a national database called the National Consumer Telecom & Utilities Exchange (NCTUE), on which Equifax already reports.

The new score will also incorporate data from LexisNexis, to determine how often people change addresses -- frequent changes suggesting less stability and greater risk for the lender.

FICO is developing the alternate score to sell to its clients, who are trying to determine how to make loans to – and money from – those consumers who otherwise wouldn’t qualify; and as a result, have been shut out of mainstream borrowing. There is a vast market—according to FICO, 53 million Americans currently have credit scores that are unacceptable to lenders or don’t have scores at all.

While gaining access to credit could help many, chances are, banks will charge riskier borrowers higher interest rates and pile on extra fees. Additionally, young adults will need to be conscientious about paying all of their bills on time, else risk seeing a ding on the new credit score. They also may worry about frequent address changes.

Finally, critics of the new score believe that lending money to shaky borrowers is one of the factors that contributed to the financial crisis and should be avoided at all costs. Or in honor of the start of baseball season, it could be what Yogi Berra once called "Deja-Vu all over again."