Tuesday, September 23, 2008

Fitch Becomes First Rating Agency to Accept Mortgage Loans Based on VantageScore, Posted by Robert Paisola

Fitch Becomes First Rating Agency to Accept Mortgage Loans Based on VantageScore

Last update: 10:08 a.m. EDT Sept. 22, 2008

NEW YORK, Sep 22, 2008 (BUSINESS WIRE) -- Fitch Ratings announced today that it is the first rating agency with the capability to evaluate and assign ratings to mortgage loans based on VantageScore, the generic credit scoring model jointly developed by the three national credit reporting companies (Equifax, Experian, and TransUnion).
According to testing done by Fitch, VantageScore provides highly predictive evaluations of consumer creditworthiness. The three national credit reporting companies apply an identical algorithm to data, creating a more consistent score. The model can also score consumers with limited credit histories.
'The mortgage crisis has not only shown that a multitude of factors influence the performance of high risk loans, but has also underscored the need for an improved generic consumer scoring model against which mortgage lenders can more reliably make their loans,' said Group Managing Director and U.S. RMBS group head Huxley Somerville. 'Built using data that includes the dramatic rise in consumer indebtedness in recent years and regularly revalidated to ensure the model's continued predictiveness, VantageScore has shown to be more accurate than FICO because it excludes the use of authorized trade lines.'
Fitch has fully incorporated VantageScore into ResiLogic 2.1, its flagship quantitative model that provides credit risk analysis at the individual loan and pool level for residential mortgage loans. ResiLogic was recently updated to include national economic and regional performance factors, loan seasoning, and adjustments for high risk loan underwriting and mortgage insurance.
About Fitch Ratings:
Fitch Ratings is a global rating agency dedicated to providing the world's markets with independent, timely and prospective credit opinions. Fitch Ratings is headquartered in New York and London and is part of the Fitch Group, a majority-owned subsidiary of Fimalac, S.A., headquartered in Paris, France. For additional information, visit www.fitchratings.com or www.fimalac.com.
About VantageScore Solutions:
Stamford,CT-based VantageScore Solutions, LLC ( www.vantagescore.com) is an independently managed company that holds the intellectual property rights to VantageScore--a new generic scoring model introduced in March 2006. Created by America's three major credit reporting companies (CRCs) - Equifax, Experian and TransUnion--VantageScore's highly predictive model uses an innovative, patent-pending scoring methodology to provide lenders with a consistent interpretation of consumer credit files across all three major credit reporting companies (CRCs) and the ability to score more people.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
SOURCE: Fitch Ratings
Fitch Ratings, New York
Huxley Somerville, 212-908-0381
Media Relations:
Sandro Scenga, 212-908-0278

Copyright Business Wire 2008

Sunday, April 20, 2008

Insurers' use of credit scoring is here to stay, Posted by Robert Paisola

Mr. Robert  Paisola  Motivational Speaker on THE SECRET

Q I just received my FICO score and VantageScore ranking. My FICO score was 5 points less than my VantageScore ranking, yet FICO gave me a "good" rating and Vantage gave a "nonprime" grade D scoring. My vehicle insurance went up because of this score. Is there any way to dispute this?

A Don't I wish you could dispute your insurer's decision!

My insurer did the same thing to me while insisting I was still saving more money on my insurance than if the company didn't use scoring. Go figure.

What's really interesting about your situation is the big difference in how FICO and VantageScore rated your scores.

First, let me talk about my actuarial friends.

Insurers have the right in most states to view your credit history and include what is found there in their calculations of your personal risk.

Why? Well, insurers say — and our fearless state representatives agree — there is a correlation between how a person handles credit and the likelihood of filing an insurance claim.

So to help everyone manage the difficult situation of who gets charged what rates, or gets coverage at all, insurers rely on a scientific model.

The bottom line of the situation is that insurance credit scoring is here to stay.
You can ask the insurer's customer service why your rates went up, but you'd probably have more luck asking my cat Stinky for answers. Each company has its own scoring models and considers them to be trade secrets.

However, you can get a version of your generic insurance score from TrueCredit. You will receive an auto and homeowner's coverage score along with advice for improving your score. Insurers may not look at the information contained in your credit reports and scores in the same way that a potential lender would. For example, an insurer may be more interested in your payment history than in how much you owe.

Your FICO and VantageScore credit scores are based on the information contained in your credit reports at each of the three major credit bureaus — Experian, Equifax and TransUnion.

Because each bureau has different data in its files about you, you will have a different score depending on which type of data they use.

Although you cannot dispute your scores, you can check your credit reports to assure that the information used to calculate those scores is correct. If you find inaccurate or out-of-date information, you should file a dispute with the bureau that reported it.

VantageScore is a relative newcomer to the credit-scoring industry. It was developed by the bureaus, and they claim the VantageScore ranking is more up-to-date than a FICO score. Different math and weightings are used to figure your score, and each has its own range of scores.

FICO scores go from 350 to 850, while VantageScores range from 501 to 990 and also include a letter grade.

Once you have your credit reports in the best shape possible, your only other alternative for saving money on your insurance premiums is to shop around for different insurance carriers.

Because insurers each use their own scoring systems, you could have a much better score with carrier A than you do with carrier B, and your premium will reflect that.

Friday, March 07, 2008

FICO 08: The New FICO Credit Score Model, posted by Robert Paisola

FICO 08: The New FICO Credit Score Model
Fair Isaac Tweaks the FICO Formula
Published on: Friday, March 07, 2008
Written by: Brad Zimmerman

It’s been almost a decade since the Fair Isaac Corporation changed the formula to their popular and widely used FICO credit score model, and apparently a decade is quite long enough. Fair Isaac is preparing to roll out its new credit scoring formula—aptly titled FICO 08—this spring, an accelerated date, in order to help lenders improve their risk management in the wake of rising loan defaults.

Fair Isaac predicts the new formula will reduce default rates on consumer credit between 5 percent and 15 percent, according to the Wall Street Journal. Lenders have been increasingly needy of a more accurate measurement of credit risk as defaults continue to build up because of subprime mortgages and falling housing prices.

“Higher-risk borrowers may find it tougher to get credit, while those with less-risky profiles—though they may have gotten approved for credit accounts in the past—will start to get better deals from lenders,” according to the Wall Street Journal.

The FICO scoring system, which is used by 90 percent of the country’s 100 largest banks, won’t be tampering with the scoring range of 350 to 800, or with things such as timely payments, length of credit history and amount of debt, among other things. There are some changes investors should be aware of, however.

Most notably, FICO 08 will eliminate authorized users; see our previous article Credit Boom Turned Credit Bust for more information. While the old system would allow spouses and children of primary card-holders to become authorized users and build their own credit histories, lenders felt the practice undermined their attempts to contain credit risk, according to Mortgage News Daily.

The move was largely in response to the creation of credit-repair websites that would allow consumers with bad credit to become authorized users on the account of a stranger with a good credit history. It will, however, hurt those spouses and children of card-holders who legitimately used the practice to build their own credit.

Additionally, FICO 08 will give more credit points to consumers who maintain multiple lines of credit, such as a credit card, auto loan and home loan, while penalizing more heavily those people who use a lot of their available credit, according to the Wall Street Journal.

The new system will also go easier on consumers with an occasional slip-up in payment and come down much harder on those with multiple credit infractions. The new system is intended to be more precise in determining good and bad risk borrowers, especially among subprime borrowers and those seeking or just establishing credit.

Although it seems like the FICO 08 scoring system will be much tougher, the average credit-holder may be pleasantly surprised.

“Overall, more consumers will see their FICO scores go up slightly than will see their scores drop,” Tom Quinn, vice president of global scoring solutions for Fair Isaac, said in a press release.

Investors should take note of Fair Isaac’s changes in the scoring system and expect to see it go into effect in the coming months as the major credit reporting agencies adopt it. Fair Isaac has already given FICO 08 to Experian and TransUnion plans to implement the new system sometime in the second quarter of this year.

The third major credit reporting agency, Equifax, is in the midst of a lawsuit with Fair Isaac about competition from a new system, VantageScore, and plans not to move forward with FICO 08 at this point in time, according to the Wall Street Journal. Fair Isaac maintains that it will distribute the formula to all three agencies.

Friday, August 03, 2007

Knowing the score can reduce finance charges

Knowing the score can reduce finance charges

Special to the Star-Telegram
Take this quick true/false quiz.
Your credit score is influenced by:

A. Your income

B. Your age

C. Your state

D. Your ethnicity

E. Your education

If you answered true to any of these, you don't know what a credit score really is.

Low scores mean higher interest rates on everything from car loans to mortgages to credit cards. Low scores can also mean higher insurance rates, an inability to get services like cellphones, and difficulty getting a job or a place to live.

Your credit score has enormous influence on your daily life, yet a recent survey by the Consumer Federation of America and Washington Mutual reveals that most Americans still don't understand it.

"I'm surprised so many people know so little about their credit score," said Stephen Brobeck, executive director of CFA. "I expected to see an improvement of knowledge over the last couple of years."

Yet an amazing 74 percent of people surveyed thought income influenced their score. More than one-third said age, education and state of residence had some effect. Nearly 20 percent thought that ethnicity had an impact.

Wrong. Wrong. Wrong.

Let's all go back to Credit Scores 101.

Credit scores serve one purpose: They indicate your risk of not paying back what you owe.

FICO scores -- named for their creator, Fair Isaac & Co. -- range from 300 to 850. The higher your score, the better off you are with lenders, insurers, employers and landlords. Most scores fall between 600 and 700, according to Consumers Union, with higher-cost lending, called subprime lending, starting with a score of 620.

How much can that difference in cost be? FICO estimates that someone with a credit score between 760 and 850 will pay $466 less a month in interest on a 30-year, $200,000 mortgage in Texas than someone with a score of 500 to 579.

Washington Mutual estimates that $20 billion would be saved in lower credit-card charges if Americans raised their credit scores an average of 30 points.

The scores are generally made up of five different criteria. Fair Isaac breaks it down like this:

Payment history, 35 percent. This means just what it says. A long history of making payments on time leads to a better score. One or two late payments won't usually hurt, but missed payments, bankruptcies, foreclosures and liens can have a serious effect on your score.

Amounts owed, 30 percent. Owing money in itself does not trigger a low score. Your score is hurt if you are close to maxing out a credit card or if the amount you owe has jumped recently.

Length of credit history, 15 percent. It's possible to have a short history and a high score, but longer is better.

Type of credit in use, 10 percent. This portion looks at the mix of your credit, from mortgages and installment loans to credit cards and retail accounts. It's not a key factor unless there's not much other information about you.

New credit, 10 percent. Timing again plays into this part of the score, in that opening up several lines of credit in a short period can lower your score. Multiple card requests can also lower your score.

This year, the three credit bureaus introduced a new scoring system called VantageScore. Its range is 501 to 990 with accompanying letter grades from A to F.

Adding another score and range to the market complicates things for consumers, Brobeck said. But as long as you know the range, either score will give you an idea where you stand with lenders, insurers and others you want to do business with.

"If you don't know what a good score is, you can't understand if you have a good score," Brobeck said.

Getting your score generally costs about $14, although the new VantageScore is selling on Experian's Web site for $5.95.

For three years, Washington Mutual has given its customers free access to their credit scores online, said Alan Elias, senior vice president at the S&L.

"We have to pull the scores every month anyway to monitor them," he said. "And our customers can use it as a way to monitor identity theft."

Remember, credit scores can't generally be repaired overnight. But for most of us, working on some of our credit habits for six months can make a big difference.

Bottom line: if you're planning next year to buy a house or car, sign up for a credit card, cellphone or electric plan, rent an apartment or go to a job interview -- check out your score.

What's in your report?

Check your three credit reports at no cost at www.annualcreditreport.com, call 877-322-8228 or request a form at the Web site and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You will need to give your Social Security number. The report does not include a credit score.

Source: Consumer Federation of America


A good credit score can save you thousands of dollars, particularly when you're borrowing money to buy a house. Here are several ranges of scores and the monthly payment on a $150,000, 30-year mortgage associated with them:

700-759: Rate: 6.52% Cost: $950

680-699: Rate: 6.7% Cost:$968

660-679: Rate: 6.91% Cost: $989

640-659: Rate: 7.34% Cost: $1,033

620-639: Rate: 7.89% Cost: $1,089

Average U.S. credit score: 678

Source: Bankrate.com

Boosting your score

There's no magic to raising your credit score. Here are the basics:

Pay bills consistently and on time.

Don't max out credit cards or other revolving credit.

Pay off debt rather than moving it around.

Don't open new accounts often.

Source: Consumer Federation of America

Wednesday, June 06, 2007

For Rent: Your Credit Score

For Rent: Your Credit Score
Loophole in FICO Enrages Lenders

By Martin H. BosworthConsumerAffairs.Com

June 5, 2007

Plastic Prison • Credit Tips And TricksGet Control of What You OweNo Easy Way Out Of Credit Card DebtPenalty Fees, Interest Rate Hikes, and Misleading Contracts Await Credit Card Shoppers"Convenience Checks" Carry a Heavy Price TagNew Forms of Credit ScoringUnderstanding CreditCredit Bureaus: Who You're Dealing WithReading Your Credit ReportCredit Scoring: The Fickleness of FICOCredit Knowledge: A Long, Hard, Struggle---News• For Rent: Your Credit ScoreFed Proposes Tighter Controls On Credit Card RatesSenate Bill Would Curb Abusive Credit Card PracticesSenate Panel Slams Abusive Credit Card PracticesCongress Targets Credit Card Companies For ReformReport Finds High Debit Card Overdraft FeesBank, ATM Fees Continue To RiseCredit Card Fees Rise, Disclosure Statements InadequateFree Credit Reports Mark First AnniversaryCredit Card Debt Sinking Many Older ConsumersExperian Launches New Credit Score; Critics UnimpressedCredit Cards Target StudentsCredit Card Companies Fear "Perfect Storm"Credit Bureaus Introduce New Scoring SystemMore Banks Using Universal Default to Hike Interest Rates

The all-important three-digit number known as your credit score has become the central pivot on which the financial industry moves.

Borrowers are repeatedly told to demonstrate good financial behavior not just for its own sake, but to ensure that their credit score stays high enough to receive approval from lenders. And a score that doesn't meet with lenders' approval can keep otherwise responsible borrowers from getting a home or car loan for years.

So it should come as no surprise that companies like InstantCreditBuilders.com (ICB) and Addatradeline.com have devised a way to game the system -- in this case, by paying people with high credit scores to let low scorers "piggyback" on their ratings and receive boosts to their own scores as a result.

The new trick takes advantage of a loophole in the credit system. People who have little or no credit histories, such as college students, can be added as an "authorized user" to credit cards that are ultimately paid for by Mom and Dad.

In this case, the "authorized user" with good credit is paid several hundred dollars to "rent" their credit score out to someone else, with the agency taking their cut from the potential piggybacker.

Lenders Object

Although the Federal Trade Commission has been taking a wait-and-see approach to the issue, the financial and mortgage industries are already on the warpath.

The National Association of Mortgage Brokers (NAMB) is planning to release a statement opposing the practice. Mortgage lenders say the practice undermines the trust lenders place in the FICO score, which is by far the most widely-used scoring system for new loan approvals.
"We have become so dependent on FICO scoring that we rely on it almost to the point that FICO is the decisionmaking process," Bremer Mortgage president Jim Miley told the Minneapolis Star-Tribune. "If we can't get assurances that FICO scores are accurate, then we will definitely go back to manual underwriting of loans, a time-consuming and expensive process."

Unforeseen Consequences

Fair Isaac, creators of the FICO score, has said that it will close the "authorized user" loophole in its credit scoring model to protect against "piggybacking." John Ulzheimer of Credit.com says that the move is going to "screw consumers royally."

"A lot of people are going to get penalized for something a few bad apples did," Ulzheimer said in an interview with ConsumerAffairs.Com. "The value of any authorized user on a credit card is now totally lost."

Ulzheimer said that anyone who has built a credit history as an additional user on a card, ranging from college students to married couples and divorcees, will have to "rush out" and open up new credit accounts to rebuild or maintain their scores and credit histories.

"It won't be as big a rush as people filing bankruptcy before the new laws took effect,"
Ulzheimer said, "But you'll see it happen."

Ulzheimer, who formerly worked at both Fair Isaac and Equifax, said companies like ICB are liable for enforcement under the Credit Repair Organizations Act (CROA), which mandates the rules that so-called "credit repair organizations" work under. "The minute they take money in advance, they're liable under CROA," he said. "This is a case of merchants ripping off businesses, and some consumers ripping off lenders."

Bad Data

FICO became dominant largely because it streamlined the formerly cumbersome and detailed process of lending down to a simple number.

Whereas local credit bureaus and mortgage lenders would previously look at a person's entire financial history and make calls based on individual judgment, the modern system relies almost totally on the proprietary algorithm developed by Fair Isaac, and based on information in credit reports that is very often inaccurate.

The ease with which credit could be approved led to an explosion of availability of lending to people who would not ordinarily have qualified, but the mania to approve credit and sell reports and scores to lenders also led to constant errors and mistakes in reports that are very difficult to correct.

Now the housing market is in the doldrums, thanks to subprime loans going into default and foreclosure accross the country. Even the Federal Reserve is reconsidering the easy access to credit that consumers have come to take for granted.

And the closing of the "authorized user" loophole won't just make building credit tougher for consumers -- it's exposed a vulnerability in the FICO score that has competitors like the credit bureau-backed VantageScore ready to pounce.

John Ulzheimer had previously criticized the new score, which is sold right from the three bureaus, as "an effort to confuse consumers and unsophisticated lenders."

Now, he said, "I wouldn't be surprised if there was an all-hands meeting at VantageScore Solutions to discuss what to do" about the loophole in the FICO score. "They're licking their chops."

Report Your Experience If you've had a bad experience with a consumer product or service, we'd like to hear about it. All complaints are reviewed by class action attorneys and are considered for publication on our site. Knowledge is power! Help spread the word. File your consumer report now.

Monday, June 04, 2007

Highs & lows for consumer in search of his credit score

Posted Monday, June 4th 2007, 4:00 AM
When Mel Larson requested his free annual credit report from a major credit reporting agency, he also ordered his credit score. "There was a $5 charge, but I felt it was a good idea since the number is important," he explained.
But he wasn't happy with what he got. "I received something called a VantageScore, not the FICO score I expected," he said. "My score was 898, well over the top FICO score.
Can a VantageScore be translated to a FICO score?"
Not exactly. Credit scores are the three-digit numbers that lenders use to assess the credit risk of a potential borrower.
Fair Isaac's Classic FICO score is the most often used credit score in consumer lending and mortgage lending. FICO scores range from 300 to 850.
Although FICO scores remain dominant, several alternatives have developed within the past few years.
In March last year, the nation's three leading consumer credit reporting companies - Equifax, Experian and TransUnion - jointly launched their own proprietary credit scoring system, VantageScore.
When you order your credit report fromExperian or TransUnion, you receive a VantageScore. Equifax, however, still provides FICO scores.
If you want to get a FICO score based on your Experian or TransUnion credit report, you have the option ofordering it from Fair Isaac (www.myfico.com).
Otherwise, you can only roughly compare your FICO score and VantageScore.
VantageScores range from 501 to 990, and approximate the letter-grade system used in most schools. That means a score of 901 to 990 is an A, while a score of 801 to 900 is a B, 701 to 800 is a C, 601 to 700 is a D and 501 to 600 is an F.
If you have a FICO score of more than 730, then you're in the solid B range. If it's 770 or more, you get an A. FICO scores of 680 to 729 are in the C range, while scores of 620 to 679 are Ds. Anything lower than 620 is an F.
Asa Aarons is a consumer reporter whoappears at 5:30 p.m. weekdays on WNBC-TV, Channel 4. His special Daily News column appears Mondays, Tuesdays, Thursdays and Fridays. Send your questions to Ask Asa, P.O. Box 3310, NewYork, N.Y. 10116 or e-mail him (AskAsa@gmail.com). Questions can be answered only through this column.End Content Columns -->