Thoughts, Ideas, and Concepts by Sandra Parks

Archive for the ‘Credit Score’ Category


Unexpected rate hikes. Over-limit fees. Double-cycle billing. Those are just a few of the credit-card practices that have trapped millions of consumers into a life of constant worry over mounting debt. In less than a week, these practices will be history.

Unexpected rate hikes. Over-limit fees. Double-cycle billing. Those are just a few of the credit-card practices that have trapped millions of consumers into a life of constant worry over mounting debt. In less than a week, these practices will be history.

Exceptions, Caveats, Loopholes:

• Rate hikes are allowed if you’re more than 60 days late with a payment.
• Some banks have already found a way around the rate-hike issue, by increasing card users’ regular interest rates to as high as 29.9% and then refunding a part of that rate for each month that the customer pays on time.
• Double-cycle billing, although prohibited, can technically still exist for credit cards that don’t have grace periods.
• Issuers have been calling consumers asking them to opt in for over-limit fees in exchange for lowering that fee, says Chi Chi Wu, a staff attorney with the National Consumer Law Center, a consumer advocacy group. What they’re not saying is that if people don’t opt in, the transaction will be denied and they will not be charged over-limit fees in the first place, Wu says.

Billing Statements, Payments and Disclosures

• Billing statements must be sent 21 days before the due date.
• Your due date should be the same date each month.
• Payments are considered on time when received by 5 p.m. on the due date or the next business day after a holiday or weekend.
• Payments above the minimum must be applied to the highest-rate balance first.
• Each monthly statement must include information on how long it would take you to pay off your balance if you make minimum payments only and the total you’ll pay, including interest and principal; and how much you need to pay each month in order to pay off your balance in 36 months and the total you’ll pay, including interest and principal.
• Statements must also include a warning that by making only minimum payments you will pay more interest and it will take you longer to pay off your debt, as well as a toll-free number to call if you want to be referred to a credit-counseling service.

Exceptions, caveats, loopholes:

If you make a purchase under a “deferred-interest” plan (such as “No interest for six months,” for example), the company may let you choose to apply extra amounts to the deferred-interest balance. Otherwise, for two billing cycles before the end of the promotional period, your entire payment must be applied to that balance. Carrying a “deferred-interest” balance is a risky proposition altogether, says Wu: Unless the balance is paid in full over the specified period, the company will charge all interest retroactively once the promotional rate expires. “We think deferred-interest plans should have been banned,” Wu says.

College Students and Young Adults

• No credit cards for college students unless co-signed by a parent or they can demonstrate “ability to pay.”
• No credit-limit increases if you are under 21 and have a co-signer without that co-signer’s permission.
• No credit-card marketing and freebies on college campuses.

Exceptions, Caveats, Loopholes:

• Issuers will likely start appealing to parents to co-sign their children’s credit cards. And the Federal Reserve has specified that issuers have the option of keeping the parent on the hook even after the young person turns 21, Wu says. “If that younger person keeps the credit card for 20 years, the co-signer is liable that whole time.”
• Issuers are not allowed to give out freebies for signing up for a credit card on or near a campus — which still allows them to set up shop near popular off-campus venues and offer freebies to everyone, whether or not they apply.


WOW!!!! Aren’t you just sick of this mess?

Disclosed for the 1st time, ‘damage points’ taken off for late payments


Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.




Did you max out your credit card? Expect a credit score drop of 10 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it. to  

The “damage points” data, unveiled recently by FICO, are part of the most revealing glimpse into the firm’s once-secret — and still mysterious — credit scoring model. The new information discloses how many points borrowers’ scores will drop when they make the most-common mistakes.


‘Help People Understand’ Scores


“I hope this information will help people to better understand FICO scores and the value for them of avoiding credit missteps. It illustrates key points such as the higher your score, the farther it can fall if you stumble,” says FICO spokesman Craig Watts. “Getting and maintaining a good score isn’t complicated. We all just need to pay our bills on time, keep credit card balances low and take on new debt sparingly. ”





The greater transparency about FICO scores is important because American consumers’ ability to get credit rises and falls with the number. FICO, the company that pioneered credit scoring, assigns consumers a three-digit number from 300 to 850, depending on how well they handle credit. Other companies also offer scores, but FICO’s version is the most widely used by lenders in determining whether a consumer can borrow, and at what rate.


FICO’s credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they’re figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed. The “damage points” information, revealed in a report by personal finance writer Liz Pulliam Weston, will be made available through its Web site starting this weekend.


FICO’s information shows that bankruptcy does the most serious damage to a credit score (up to 240 points), followed by foreclosure (up to 160 points) while maxing out a credit card has the least numerical impact (as few as 10 points).


Those with good or excellent credit — so-called prime borrowers — put more points at risk with each mistake. For example, someone with an average credit score of 680 who pays a bill 30 days late will see a drop of 60 to 80 points. But for someone with an excellent credit score — 780 — that same delinquency can send a FICO score tumbling by 90 to 100 points.


The Cost in Dollars


In order to show just how badly a drop in your FICO score can hurt your wallet, we spoke with members of the home mortgage, auto and credit card lending industries. We presented hypothetical scenarios of a consumer who decided to apply for a $200,000, 30-year mortgage; a $20,000, five-year auto loan and a credit card. While all the industry insiders stressed that a FICO score isn’t the only factor in determining who gets credit and at what cost (other factors they cited include the borrower’s debt-to-income ratio and whether they have already established a relationship with the lender), they were able to provide an idea of what a borrower who had the following credit scores could expect.


For a Consumer Who Started With a FICO Score of 780:



  • Following a 30-day late payment, the consumer’s car loan rate would jump nearly 3 percent, costing the borrower $26 more each month.


  • Following a debt settlement, the consumer would pay as much as $109 more each month on a home mortgage.


For a Consumer Who Started With a FICO Score of 680:



  • Following a 30-day late payment, the consumer would pay $41 more each month for a car loan.


  • Following a 30-day late payment, the consumer would pay as much as $95 more each month on a home mortgage.


  • Following a debt settlement, the consumer would no longer qualify for a credit card.



Some Surprised By the Details


Consumer advocates say it’s important for borrowers to know what can damage their FICO scores. “If they know it in advance, they won’t go out and step in a pile of doo-doo. They won’t go out and do some of these things,” says Linda Sherry, director of national priorities with advocacy group Consumer Action. Even experts found some surprises in today’s news. “FICO imposes bigger hits than I would have thought for being maxed out or 30-days late just once, reinforcing my view that it is a cruder, blunter instrument than they like to claim. Nevertheless, it is a powerful, widely used crude blunt instrument,” says Ed Mierzwinski, consumer program director for the U.S. PIRG consumer advocacy group.


Of course, knowing the impact on a FICO score and actually avoiding these mistakes are two separate things: Amid rising unemployment and other daily financial struggles, paying bills and staying on-track financially becomes a much bigger challenge for many borrowers.


“Some of these things are out of their control,” Sherry says of consumers.


Additionally, as Weston points out, consumers with identical FICO scores can have different credit histories. That means the same slip-up — such as maxing out a credit card — could have different impacts on consumers who have the same FICO score. In the examples they provided, FICO assumed each borrower had several active major credit cards, a mortgage, car loan and student loans.


Sherry acknowledges the benefit of putting a number to a financial blunder. “I don’t think we necessarily knew the numbers that a bankruptcy could apply to a credit score,” Sherry says.


Helping You Make Better Decisions


While knowing the numbers may not keep you filing for bankruptcy if given no other choice, the information may help you make the best decision when faced with a bad situation.


FICO scores — and the access to credit they provide — are a valuable asset to consumers and supply a safety net when incomes are stretched. It’s an asset that needs to be protected, Sherry says, even if job loss or catastrophic illness makes bill paying problematic.


“In that period of time, paying down debt is the last thing on your mind. Paying the minimum payment may also be the last thing on your mind, but you’ll be doing yourself a big favor if you do,” Sherry says.





























Did you know that there is more to your credit score than how you pay your bills, any derogatory information, and how much you owe?

The credit bureaus have very complicated methods of scoring which they do not fully disclose, but these complicated formulas account for the reasons why, for example, your missing one payment on a credit card bill might affect your score more than your friend’s or neighbor’s score.

In addition to all the well known, and previously disclosed information you think you might know, recently released an article about Secret score cards the credit bureaus use to compare you to your peers.

Credit bureaus group people into peer groups with similar credit histories. For instance, if you have had a prior bankruptcy, you will be grouped with others with a prior bankruptcy for scoring purposes. If you have a very short credit history, you will be grouped with others with similar credit histories. These groups of people compose what is known as “score cards.” This actually makes a lot of sense when you think about it.

One of the things that is strangest of all about “score card” groupings, is that as some of your credit history becomes aged, and drops off your report (for instance a bankruptcy that is finally old enough to drop off your report), you will automatically move into a new score card group. Ironically, this could work to your disadvantage, rather than your advantage. Yes, the bankruptcy, which was costing you points, is gone, but your new peer group could have a tougher scoring model, so those balances you carry on your credit cards might count more against you than they did before, and your scores might actually drop, rather than improve once that bankruptcy record disappears!

You are never told when you are moved from one “score card” to another, and the differences in your scoring might be so subtle that you don’t even notice. Currently FICO scoring has 12 score cards. They recently added two new score cards to the 10 that were in use prior to the economic meltdown. They will not disclose what all the score card categories are, but have disclosed the following:

  • Bankruptcy
  • “Thin credit files” – for those with relatively new credit histories and little information
  • Aging of credit histories

I would guess new score cards might include foreclosures, short sales, but this is just a guess.

Here’s another interesting bit of information: not all score cards have the same score range. It is commonly believed that the scoring range is from 350 – 850. However, if you are on a bankruptcy score card, there is no way you qualify for an 850 score, nor does anyone else on your score card, so your scoring has a different range.

And of course, there are 3 credit bureaus, each with their own scoring methods, which explains why your 3 credit scores are almost never the same.

Are you thoroughly confused? The credit bureaus will not disclose all their formulas for obvious reasons. Your best defense to keep your scores high is to:

  • Pay your bills on time
  • Keep your credit balances LOW (as in pay off bills monthly if possible, or under 10% of your credit limit).
  • If you have to carry a substantial amount of outstanding debt, spread it around among several credit cards, rather than carrying it all on one card.
  • Pay more than the minimum amount due, and if possible, pay on bills more than once in a month, even if that second payment is very minimal.
  • Don’t open new sources of credit frequently; use existing credit instead
  • Use more than one type of credit (examples are revolving credit (such as credit cards), installment credit (such as car loans, or gym memberships), and of course, mortgages, if you own property.
  • Do NOT close credit cards you are not using.  Your score is based, among other factors, on the amount of credit you are using, versus the amount of credit you have available.  When you close a $10,000 line of credit, you are reducing the amount of credit you have available.  Closing just one such line of credit, could drop your score!

Below is a chart showing how the FICO scoring model weighs information on your report:

Click here for more information on your credit reports, how to keep your scores high, and how to correct errors.

I hope this clears up some of the mystery surrounding your credit scores.  As someone in the business of reviewing redit reports as part of my job, it certainly answered some questions for me.

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I can’t remember where I got this information from but it is very useful!!!

Sandra Parks, MBA 972.569.7938

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