Nov 21, 2009

“No FICO” Credit Cards – Understanding the Scam

Qualifying for additional credit is one of the many reasons people work to keep their credit scores healthy. The allure of a credit card that does not require a credit check is one that appeals to many. Secured credit cards, those which require a deposit in order to be issued following to this category. However, typically the credit limits are low — anywhere from $200-$500 — unless the amount of the deposit is significant. “No FICO” credit cards promise credit limits of $50,000-$100,000, all without pulling your credit limit. But there’s a catch — you have to pay for the processing fee upfront (typically $500-$600), and your credit card is actually tied to a trade line with the bank.

Most, if not all, of these offers are scams — you pay the money and you receive nothing in return. The most famous of these “no FICO” credit card companies is a known scam, and the Attorney General has made an arrest in connection to the fraudulent credit scheme.  London Exchange, based out of Santa Ana California, has allegedly scammed consumers out of hundreds of thousands of dollars. The owner of this company is currently under arrest; however, there are no details about whether or not the consumers who were scammed can expect to see any of their money returned.

However, even if some of these “no FICO” arrangements are legitimate, they do nothing to help you improve your credit score, and in fact may only cause more financial troubles down the line. Because you essentially sign an agreement to be responsible for the trade line, you could be held responsible for other individuals’ payments on the same trade line. So if one individual on the agreement racks up debt and then defaults, everyone else using the trade line may then be charged and held accountable for that default.

Assuming that everyone pays as agreed and no one defaults on the trade line, there are still problems – namely, that all of your timely payments are doing nothing to improve your credit scores, or help you to reestablish a solid history of repayment on your credit report. The bank issuing the trade line does not report these payments to the credit bureaus, as the credit is never applied for in your name. While some individuals may see this as a benefit, due to the fact that it will not show up as a financial obligation when someone pulls the credit report, it still must be listed on any applications for new credit, and failure to do so could be considered fraud.

Credit troubles are becoming more common in the current economy, as individuals who may have had excellent credit scores in the past struggle with unemployment, rising housing costs, and other financial issues. As credit limits are lowered even for individuals with an excellent history of repayment, and people continue to look for alternative methods of financing, one can expect these types of scams to continue. Your best option when it comes to evaluating any potential extension of credit is to be vigilant with your research, and to turn down any offer of credit that requires high fees up front.

Source: http://ag.ca.gov/newsalerts/release.php?id=1813

Posted in FICO, credit card offers, credit cards, credit scores | No Comments »



Apr 6, 2009

No More MyFICO? Experian’s Decision to Eliminate Consumer Access to Its FICO Scores

Consumers checking their credit scores no longer have access to Experian’s FICO score directly – the company did not renew its contract with MyFICO.com, and has no plans to offer consumers access to their FICO score directly in the future. Instead, Experian offers a different score model to consumers which is supposed to help simplify the scoring process for consumers. Unfortunately, the new scoring system does not use the same calculations or scale as the FICO score, which can lead to confusion among consumers who want to compare their FICO score amongst Experian, Equifax, and TransUnion. Considering the current credit market, and the fact that just a few points on your FICO score can make the difference between an affordable interest rate and payments that you just can’t make, this is a serious disadvantage – not only for people who are trying to improve their credit scores, but for those who may be shopping around for an auto loan or mortgage.

Unless Experian changes its mind in the future, the only way to get a glimpse of your current Experian scores now is if your lender makes those scores available to you during the lending process. Fortunately, you can still check your FICO scores for Equifax and TransUnion, which will give you a fair idea of the range you can expect when it comes to your Experian score as well. If you are concerned about not having access to your Experian credit score, there are a few steps you can take that will ensure that your score is the highest it can be, even if you don’t have access to your credit score directly.

Credit Report Cleanup

To start, you should get a copy of your credit report from all three bureaus and check for discrepancies – make sure that the information listed on each report is accurate, up-to-date and consistent from one report to the next. In this way, you can be certain that all three credit scores are drawing from the same information. Make certain that if you dispute an item on your credit report, either through a credit repair service or on your own, you dispute that same item at each credit reporting agency – erroneous information left on one credit report can drag down your score.

Third Party Reports

If you’re planning on making a major purchase and you are in the pre-approval process, you may be able to get some lenders to part with your credit scores, not only from TransUnion and Equifax, but from Experian as well. Because Experian is selling their proprietary scores directly to businesses, this may be the only way for you to get a clear snapshot of your score for your reference. Don’t apply for an auto loan, credit card or line of credit just to see your Experian scores, however – multiple inquiries on your credit report can sometimes lower your score, defeating the purpose of your hard work.

Overall, your best approach to maintaining a good credit score is the same that it’s always been. Timely payments to creditors over the long-term will improve your credit score, even if you don’t have direct access to it. Take the time to improve your credit naturally, use credit-repair services wisely, and regardless of your access to your Experian FICO score, you can still qualify for that loan you deserve.

Posted in Equifax, Experian, FICO, MyFICO, TransUnion, credit, credit scores | No Comments »



Feb 13, 2008

What is a FICO Score?

To answer this question, let’s start off by revealing what the acronym stands for. FICO stands for Fair Isaac Corporation. Fair Isaac was founded in 1956 by engineer Bill Fair and mathematician Earl Isaac. They developed the FICO scores, a measure of credit risk, that are the most used credit scores in the world. In fact, according to MyFICO.com, 90% of the largest U.S. banks use FICO scores.

FICO scores are available through all of the major credit bureaus in the United States including Equifax, Experian, and TransUnion. You can also get your scores directly at MyFICO.com. It’s important to note that the credit bureaus and many other credit monitoring companies also offer you their version of your credit score based on information from your credit reports, but these scores are NOT the same as your FICO scores and usually not the same scores your lenders will use. These scores are what are commonly known as FAKO scores and are more often than not, way off from your actual FICO score.

FICO scores can range from 300 to 850, but the majority of scores usually fall within the 600s and 700s. MyFICO.com reports that they are the only site offering all 3 of your FICO scores and the median FICO score in the U.S. is 723.

The exact scoring formula of FICO is kept very secretive, but they do tell us this:

Credit scores are calculated based on your rating in five general categories:

35% – Payment history
30% – Amounts owed
15% – Length of credit history
10% – New credit
10% – Types of credit used

Higher scores mean lower interest rates. If you’ve been declined for a loan, chances are lender has made their decision based on your credit scores. You can increase your FICO scores by removing bad credit and adding good credit to your credit. Learn how you can remove late payments, collections, charge-offs, bankruptcies, foreclosures, repossessions, judgments, and tax liens on your credit report to improve your chances at getting a loan.

Posted in FICO, FICO scores, Fair Isaac, credit, increase FICO | No Comments »



Oct 21, 2007

Settling Old Debt Can Hurt Your Credit Scores

Did you know that settling some old debts can actually harm your credit score? Consumers shouldn’t always assume that paying off old debts will improve their financial situation or make them a better risk in lenders’ eyes. Borrowers who try to pay off old delinquencies, charge-offs and collection accounts often find that sometimes, doing the right thing does the wrong thing to your credit.

How can this be possible? The Fair Isaac Corporation, the company that determines your FICO scores, has fairly determined that the most recent accounts on your credit count towards your scores the most. The older the account is on your credit report the less it factors in to your scores and a lot of times when you pay off a debt you make the account current. The only problem is that the credit bureaus still report the account as negative, but now instead of being old, it’s brand new like it just happened. It will stay on your credit report for 7 more years. This can damage your credit scores drastically.

Before you consider paying off an old debt on your credit report, you may want to contact the creditor in writing. Tell them of your good intentions and ask them if they will agree to delete the account from your credit reports if you settle your debt (lots of times for much less than you owe). Get their agreement in writing!

You must be careful when contacting creditors though. Arranging a payment plan or even inquiring about an old debt can restart the statute of limitations in some states, allowing creditors to sue you. Simply contacting a creditor about a past-due account can renew its interest in trying to collect, leading to harassment and hardball tactics.

Some debt collectors will actually refuse to delete the account from your credit reports, even if you pay. Others will pretend they are “not allowed” to. That is obviously not true.

Even worse, some unethical collection agencies may promise to upgrade how your debt appears on your credit report in exchange for payment, then not follow through or make matters worse by making the debt seem more recent than it is.

So, what should you do if they won’t agree to delete it? Simple – don’t pay it. Wait until the end of 7 years for it to come off of your report. It’s really not hurting your scores that much anyway and the older it gets, the less it factors in.

Instead of paying them off, work to get new positive accounts reporting on your credit report. As the old negative accounts become less relevant, the new positive accounts become more relevant and increase your credit scores.

Remember to always monitor your credit reports to make sure that unethical collection agencies don’t purposely re-age your accounts. It’s illegal, but it still happens quite often. Check your state’s collection laws to see how long a collector can collect on your debt. Once the debt is past the statute of limitations, they can no longer legally collect on that debt.

Posted in FICO, Fair Isaac, credit, credit scores, credit scoring, debt collectors, debt settlement, settle debts | No Comments »



Jun 21, 2007

New FICO Rules May Affect Millions

My last blog post was about how to take full advantage of becoming an authorized user. About 60 million consumers are authorized users on someone else’s credit card. But, that is all about to change. My previous blog post is pretty much obsolete now thanks to FICO’s new scoring model. Read about that and other changes below.

New FICO Rules May Affect Millions
By Vicki Lee Parker

Monday, June 18, 2007

In September, the FICO credit-scoring system is set to undergo a major overhaul. Fair Isaac Corp., the Minneapolis company that creates the formula used to calculate the score, is downplaying the change, saying it won’t have much of an effect.

I beg to differ. Any change in the way that scores are decided affects millions.

Forty of the top 50 financial institutions in the country rely on FICO scores to determine whether to approve a loan and what rate to charge. Retailers, landlords, insurance companies, employers and utilities also use it to decide how to do business with you, or if they should.

Because Fair Isaac doesn’t want rivals to copy its formula, it isn’t giving out many details about the changes, but spokesman Chris Watts did say this:

Fair Isaac divides the population into 10 segments based on credit history and applies a different formula to each. Eight segments include people with good credit and two are for people with serious problems.

Under the new system, the population will be divided into 12 segments: eight for people with good credit and four for people with bad credit. That could result in a slight change up or down in many scores.

“This new system will give lenders more dependable scores for those higher-risk consumers and those who have little history,” Watts said.

Now, that’s not really a bad thing if your credit is pretty good, but if you’re on the margin or trying to establish your credit, it could mean trouble. Because businesses interpret scores differently, a slight change could be the deciding factor in whether a landlord decides to rent to you or whether your bank decides to increase the interest rate on your mortgage or home-equity loan.

For example, according to Fair Isaac’s Web site (MyFICO.com), the difference between a score of 620 to 659 and one in the range of 660 to 699 can result in a $163 difference in the monthly payment on a 30-year mortgage.

Watts conceded that certain groups will feel the effect far more than others. People with thin credit histories or poor credit will likely see their score jump or drop significantly, he said.

As it goes with most changes, there are some people who are going to be hurt through no fault of their own.

One adjustment to the current credit scoring system will be to stop giving credit points to people who are authorized users on someone else’s credit card.

That change will affect about 30 percent of people with credit reports, or about 60 million consumers, said John Ulzheimer, president of educational services for Credit.com and a former manager for Equifax and Fair Isaac.

That change is going to affect young adults trying to establish credit by attaching themselves to their parents’ credit cards; spouses — mostly women — who are authorized users on the family credit card; and people who are trying to re-establish credit by coat-tailing a family member’s good credit history.

Fair Isaac has closed this loophole because the lending industry has complained about abuses and said the loophole was distorting borrowers’ true credit risk.

So what can consumers do?

First, those who became authorized users to help build up credit should consider switching to a joint account. That will allow the joint member to continue to reap the benefits of the primary cardholder’s strong credit history.

However, that option poses more risks to the primary holder of the credit card. For example, if an authorized user abuses the card, the primary cardholder simply has to make a phone call to revoke the user’s card. But it’s not as easy to remove a joint user. The primary cardholder would have to close the account and open a new one to remove the user from the account.

Posted in FICO, Fair Isaac, authorized users, credit, credit cards, credit scoring | No Comments »