Credit scoring: A fun, endless, limitless conversation
This topic is the holy grail for consumers and the redheaded step-child for journalists. If you are the latter, cover some new ground and ask an unanswered question (if they answer the first time, you failed) instead of regurgitating the obvious provided by the industry. Run along. Here is a bone. Click away.
This web site's author posed the fundamental question What is my credit score? and later, How can I improve my credit score; that is, make it higher? to the national credit reporting agencies in 1997 to flush-out information about a secret consumer ranking system. It was characterized as sinister by U.S. Senator Charles Schumer in introducing legislation to allow consumers access to their credit scores.
Few can speak with complete authority on how to improve a credit score because the formula is still secret. But, that doesn't seem to stop anybody in fact it seems to encourage quackery. However, a year after the scores were released to the public, the company that administers the score algorithm began offering a "score simulator" to provide clues on how to improve a FICO score.
An endless parade of media types write/talk/appear on camera and yuk it up with comedic results about improving the FICO score. It is the same old article re-hashed over and over again with the same quaint information presented in morning television show coffee clatch style. Few mention the simulators which make the pretentious advice from the 28-year-old scribe pointless.
FICO Score Simulators as an aid to improve your credit score
For better or worse, the score simulators at myFICO.com are two of the few tools providing direct, credible feedback on how to improve an indivdual's actual FICO credit score. And, in fact, as Fair Isaac points out, "myFICO is the only place where you can get your FICO scores, the scores that lenders use, from all three credit bureaus." You can get the Experian score as part of the trio, but there is no simulator; Experian wants to sell you its own score, "PLUS" (not a FICO score) and its own "Score Simulator." It is no coincidence that Experian uses the same term, Score Simulator (capitalized, no less) as Fair Isaac's myFICO.com.
This page neither applauds nor criticizes Fair Isaac's market lock-hold, but it is the truth. The company has its own turf argument with the national consumer reporting agencies (credit bureaus; repositories). In the fall of 2006, the keeper of the FICO score formula sued its business partners over a joint-effort by the three blind mice to create a new score. It is allegorical to the big-three automakers aligning to create a new tire. Legal arguments aside, the bureaus just look like bullies late to the party, and a move by Fannie Mae and Freddie Mac to adopt a new score would be a historic moment in the obscure geekdom of credit, if it should ever happen.
So, pick your poison: Fair Isaac's apparent monopoly, or the CRAs' alleged anti-competitive tryst. If you are a credit bureau, with record revenues, what else are you supposed to do with yourself? Answer: Stop jacking around with re-packaging the same data yet another way, and get real about accuracy, full-disclosure and obeying the ever-loving, flipping credit report law (enacted in 1996). GIGO.
VantageScore, and The Fake-O
And again, the media buzzard, hungry as ever for a carcass to pick, named the brand-new, un-proven VantageScore the new thing of the moment. But for now, the FICO is still large and in charge so make it your benchmark score as you attempt to improve your credit. Don't be fooled by cheap imitations. Ask any banker what VantageScore or PLUS score they require for your loan and you are likely to get a blank stare. Choose wisely when signing up for access to your "score" and simulators to help you understand how to increase it.
Did you apply for a mortgage loan and need to improve your credit score to get it?
Get your credit score
To start, get the credit score that the lender used from that lender; the law is on your side, finally. They must give you a document titled "Notice To The Home Loan Applicant" and which starts with the words "In connection with your application for a home loan, the lender must disclose to you the score that a consumer reporting agency distributed to users and the lender used in connection with your home loan, and the key factors affecting your credit scores." If you don't get it, find another lender and sue the first one.
Get your credit report
If the lender took adverse action against you because of information in your credit file, you have the right to a free credit report, too. Separate from your right to a free report due to adverse action is your right to a free credit report for no reason whatsoever, annually, from each of the three major national consumer reporting agencies. For more options on obtaining credit reports, see Part 2, creditaccuracy.com.
If you use annualcreditreport.com, don't be confused by the offers for "credit scores." The reports are free, but the scores are not. And beware: Only Equifax offers a FICO credit score through annualcreditreport.com. You are forced to pay again to get the other two FICO scores, and you have to buy your reports, too, to get them.
The curvy road to your scores
Having fun yet? Wait till you see The Letters.
Credit repair companies
You can pay somebody to help you improve your credit score, but the government doesn't exactly endorse the idea. The Federal Trade Commission, the credit bureau regulator, goes on and on about doing it yourself, even though you are protected against bad credit repair players by a federal law (annoying formatting, isn't it-- all lines centered?) and state laws depending on where you live. Yes, it is so simple, straight-forward and obvious, it takes a 2500-word document to explain.
Sure. You can correct your own credit report to improve your credit score. And you can do your own plumbing, too.
How long does it take to improve a credit score?
One enterprising young man increased his credit score by 80 points in two months. But, if you're reading this, you probably don't have that kind of time. You probably want to "close." Enter "Rapid Rescore." Because of the sacredness of mortgage lending and buying the American Dream (and because of mortgage loan and real estate commissions), you get special treatment. You car loan buyers can just wait. Insurance shoppers, take a hike. Credit card-- (insert laugh track).
Supposedly, this process takes all of 72 hours, but, contrary to the headline, that's from the time you start the clock by turning in a papers that prove your case. Good luck getting a credit card company to affix an actual SIGNATURE to their letterhead admitting their error (admitting breaking the law, that is). There's something fishy going on with MBNA and Providian.
And, here's the million dollar question: If rapid rescore can't be charged to the consumer, and the mortgage company has to pay for it, and there is no guarantee that the score will increase, doesn't that mean somebody is making a big buck for such a high wager (the rescore fee)?
The other elephant in the living room: With the credit bureaus getting away with charging jack like that for something that they allowed to get screwed up in the first place, what's their incentive to foster accuracy?
Get real. Get serious. Get off the treadmill.
If the scoring system is designed to reflect common sense in the tradition of lending underwriting, the writing is on the wall. Past due accounts (here, not referring to collections) are real score killers. They indicate a current financial crisis, your FICO score will reflect it, and the past-due marks will drop your score so low that it could cause a denial of your loan request just like a human would. The deal is this: You are behind now, and you want to borrower more money!
SAVE, and don't stop saving. If you have found a way to pay the bills and have some left over, you've got it. If you haven't figured that out, don't start packing, yet.
Many others with advice for you
Dealing with low credit scores (indicating a bad credit history)
The Wizard (Fair Isaac)
- "FICO Score Simulator" - Experian doesn't play ball ("Available for TransUnion and Equifax reports only.").
- "Improving Your FICO® Score"
- "Suze’s FICO School reveals surprising tricks of the trade that can improve your FICO score"
The Three Blind Mice (consumer reporting agencies)
Tweedledum and Tweedledee (GSEs Fannie Mae and Freddie Mac)
- Fannie Mae: "KNOWING AND UNDERSTANDING YOUR CREDIT"
- Freddie Mac: "Don't spend money you don't have."
United States of America
- Federal Trade Commission (credit bureau regulator)
- U.S. Financial Literacy and Education Commission: "Credit"
Argues with itself
- Mortgage Center: "Over the long term you can improve your credit-worthiness by... closing unneeded credit accounts... "
- Money Matters with Suze Orman: "Avoid the Biggest FICO Blunder - Do not close down your credit cards."
Consumer Federation of America: The tale of Vera and Dave
New York Times: "How to Improve Your Credit Score"
REALTOR MAGAZINE ONLINE: "Wait a full 12 months after you’ve had credit difficulties to apply for a mortgage."