Finovate Best in Show!

We had a wonderful time today at the Finovate Conference as we launched the Credit Report Card and met some of the most interesting and innovative people working in financial services technology today.  Even more exciting: Credit.com won Best in Show, along with BancVue, Intuit, Silvertail and Yodlee.  We're so proud of our fantastic team!  Some shots from today's presentation:

Credit Report Card: A Truly Free Look at Your Credit Record

In early 2009, Credit.com contracted me to blog for them after they read a post I wrote on Boing Boing about my unpleasant experience with freecreditreport.com.

Today, Credit.com launched a new and truly free online tool called Credit Report Card, which gives you an easy-to-understand snapshot of your credit report, along with estimated scores from the different reporting agencies. It clearly shows you how your credit score was calculated, along with suggested steps for taking action in each of the five main areas that make up your credit ratings. It does a great job of clearing up the mystery of credit scores and has made me more conscious of how my financial behavior and decisions affect my credit score.

Side note: This kind of transparency is terrific -- I hate it when giant institutions have information about me that I don’t have ready access to. That’s why I ran a how-to article on making a magnetic card stripe reader in Make magazine, which I edit. People should be allowed to see what kind of information is being stored on their own credit cards!
 

Above is a screenshot of what Credit.com's Credit Report Card looks like. It’s my own credit report card. (I'm only showing the top part of the report card, as I don't want to share my personal data) As you can see, I have excellent credit :), but I’ve made too many “Inquiries” in the past year, which has knocked my overall rating down a bit.

Interestingly, the day after I generated my Credit Report Card, I went to Macy’s to buy a gift for my wife. The sales clerk wanted me to apply for a Macy’s credit card, promising all sorts of discounts on this and future purchases. If I hadn’t used Credit Report Card, I might have taken her up on the offer, which might have damaged my credit rating. So this tool has come in handy already.

The FAQ for Credit Report Card (linked from the front page) will answer the most obvious questions (executive summary = it's free; using it won’t affect your credit score; you can request a new report card every 30 days; there are no strings attached; and the data you provide to generate your report will not be used for any other purpose).

Give Credit Report Card a try, and let me know what you think of it!

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

How to Survive (and Maybe Even Thrive) on a Teacher's Salary

In the best of times, teachers aren't usually at the top of the payscale. As the daughter of a teacher, I know most of them work very hard for their paychecks. 

So it was a pleasure for me to review a relatively new personal finance book written by a teacher, Danny Kofte. His book, How to Survive (and Maybe Even Thrive) on a Teacher's Salary isn't just for teachers, though. It's really written for anyone who wants to reach their financial goals while staying out of debt, even on a modest salary. In it, he shares how he and his wife -- both teachers -- managed to save enough money so that his wife could stay home with their young children and he could remain in the profession he loves.

It's an easy read, written as if one friend is sharing advice with another. My only criticism would be that I would have liked more details about how he and his wife stuck to their budget. Did they ever go out? How did they keep their grocery bills so low? And some of the advice -- like the section on buying versus renting -- could perhaps use some updating given the current housing market.

Overall, I finished the book with a sense of, "If they can do it, anyone can." It should be required reading for college students, and not just those who plan to become teachers.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.

Paying Off Collections Does Not Lower Your FICO Scores...Myth Buster

It seems every few days I get a call or an email question from a consumer about the FICO score impact of paying off or paying down a collection account. The prevailing opinion is that paying a collection somehow makes it look like a new collection and thus lowers your scores. This is a current myth based on a past truth. There was a time when paying a collection would lower your scores, but not any longer.



So in this episode of FICO myth busting, I went to the source and interviewed Ethan Dornhelm, Principal Scientist at FICO and a FICO score developer. I also wanted some clarity behind the decision to program FICO 08 to bypass certain low-dollar collections. As you may recall, FICO 08 bypasses a 3rd party collection with an original balance less than $100.  



Regarding the myth that paying collections will lower your FICO scores, this is simply no longer true. “Unless the original assignment date, the date it went to collections is inadvertently updated, then a partial payment or payment in full on a 3rd party collection will not lower your FICO scores”, according to Dornhelm. “The FICO score is focused on the presence of the collection and how recently the collection occurred. This is true at all credit bureaus and across all generations of the FICO scoring models still commercially available.”



This is good news not only for consumers but also for collection agencies who might not have gotten paid by wary consumers who thought that making good on their past due debts would re-start the credit damage clock. The logic from people is why would I pay on a collection that’s three years old if by making a payment I’ll make it look brand new? Thankfully, this is not the case. So if you owe a collection agency money, either pay or settle with them, and don’t worry about your scores.



Regarding the choice to bypass low-dollar collections in FICO 08, Dornhelm continues: “This threshold (<$100) struck a balance between capturing a majority of nuisance collections while at the same time ensuring that the predictive power of the FICO score was not compromised.” This is great news for consumers who have seen final utility bills, library fines and other comical obligations render their FICO scores damaged. It doesn’t relieve you of your obligations to pay your bills on time but it does refine the model to only consider debts that are relevant.  

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

Credit.com to present at Finovate

We've got an exciting week ahead of us. On Tuesday, September 29th, Credit.com will launch a remarkable new product, and we couldn't be more pleased with the opportunity we've been given to present it to the world. We've been invited to demo at Finovate 2009, the leading conference for companies such as ours who sit at the intersection of technology and finance. A select group of truly innovative companies participate, and each company gets exactly seven minutes to get on stage and explain why their new product or service will change the world. John Ulzheimer, who you likely know from his hundreds of media appearances just in the past few weeks, will be doing our demo.

Look for more details about our launch next week, but if you're planning to attend Finovate, please come say hello to our team!

Upcoming Changes Affecting Housing and Mortgages

We can easily get used to things like Cash for Clunkers without realizing that they were temporary programs. As was well publicized, that particular auto program used up its allocated funds quickly and was terminated. So what about housing?
 
Since mid-2008, a number of new laws were passed to help boost the housing market. Some aspects of the programs have been notable failures -- features like trying to get lenders to modify loans that are in danger of foreclosure. Not much has happened on that front, but other parts have been more successful. Can we count on them to continue?
 
The first is the $8,000 tax credit for first-time homebuyers. This is set to expire on November 30th unless Congress extends it. Public opinion is divided on this, with polls I have seen actually favoring not renewing it. The argument is that many of those who got the credit would have bought a home anyway without the credit.
 
Others say that all it did was move purchasers forward in time, that these buyers would have bought next year anyway. The argument about wastefulness can certainly be raised here because it is silly to give money to people who would have bought anyway.  At the other end of the spectrum are those who say that the credit ought to be extended to ALL homebuyers, not just first-time homebuyers.
 
With signs that the housing market and the overall economy are improving, what Washington will do is anyone’s guess. They are unusually silent about their intentions, so if you are a first-time homebuyer who would qualify for this program, I would hurry to close escrow before November 30th.
 
On the mortgage scene, things are a bit more complicated. An emergency increase in loan limits for some 250 high-cost counties was instituted in July 2008 as part of the Economic Stimulus Act. That limit was to be a maximum of $729,750 and was in effect until December 31, 2008.
 
Enter the Housing and Economic Recovery Act, which instituted a permanent high balance loan limit of $625,500, again only for high-cost counties. In February, policymakers seemed to acknowledge that this was a mistake, so the limit was again raised on a temporary basis, back up to the $729,250 limit. That temporary increase is set to expire on December 31, 2009 and unless Congress acts again, the limit will be $625,000 again for 2010.  To can see how your county might be affected, view the spreadsheet.
 
Again, we have no clue as to Congressional intention, so if you are in a high-cost area you should carefully study the limits to see how they might affect your plans.  Note that unless extended, lenders are likely to stop funding loans over the $625,500 limit on December 1st so they have ample time to deliver the loans by December 31st.
 
Fannie Mae and Freddie Mac are also going to be more restrictive in their underwriting. They have announced changes that will have the effect of shutting some people out of the market. More on that topic next week.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.

 

Social Networking Meets Small Business Credit Ratings

Last year, a friend called me asking for advice. Her coaching and consulting firm was stiffed for a couple grand by another business. The firm that didn't pay her for her services was located across the country, so there was a good chance that any money she spent trying to collect would be a matter of throwing good money after bad.

“Can’t I report them to the credit bureaus?” she asked. “Probably not,” was my response. The credit reporting agencies are set up to collect large volumes of information from established clients, not one-time reports like hers.

Today, my answer to her would be different.

That’s because Cortera, a community-driven business information company, has unveiled the Cortera Credit Exchange, a new online service that, for the first time, blends business credit report data with user-generated payment experience reviews and ratings from companies’ business partners.

That means my friend could report the payment history of her customer who didn’t pay -- for free. Just as importantly, she could also report the payment history of customers who do pay her on time, thereby helping them build better credit ratings.

Cortera’s press release says, “Small businesses will now be able to share payment information with their peers to make the informed decisions necessary to manage credit risk, attract favorable payment terms, optimize cash flow, and capitalize on an economic recovery.”

These days, many small businesses can't afford to write off debts from customers who don't pay. That makes business credit ratings more relevant than ever. If you are a small business owner, check it out and let us know what you think.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis

Should I Buy It? A Flowchart to Help You Decide

Like an awful lot of people these days, I've cut back on my purchases. I still buy the things I need, but I don't buy very many things that I want but don't need. When I find myself lusting after some shiny new thing, I stop and ask myself, "Will this make my life and my family's life better, or worse?" I take into account the floor or closet space the thing would occupy, the maintenance it would need, its resale value, its attractiveness, and so on. If the positives outweigh the negatives, I'll buy it.

The flowchart above, created by April Dykman of Get Rich Slowly, is another way to help you decide whether or not to buy something. She used it to help her decide whether or not to buy a fancy cooktop for her new kitchen (she went with a less expensive, but equally durable, standard range).

The purpose of my "should I buy it" question and the purpose of April's flowchart is the same: to force you to stop and think before buying something. Sometimes, a small delay between impulse and action is all it takes to avoid making an unnecessarily costly purchase. As April writes: "f there’s one thing I’ve learned from being in credit card debt, it’s that the seemingly small things accumulate quickly. The only way to combat this is to be conscious of what we buy — and why we are buying it."

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.

Cosigning Dangers

Recently a parent wrote to me looking for help with a problem involving a co-signed debt. Seems she had agreed to cosign a loan to cover a dental procedure for her adult child. The amount wasn't large, though it wasn't insignificant either.

Once the dental office had her authorization, however, they approved a much larger line of credit and went ahead and completed much more extensive work. The patient couldn't pay, so Mom and Dad were now on the hook for a huge bill. They are outraged, wondering why they have no rights as cosigners.

Unfortunately, this is not the first story of that kind that I have heard. One parent told me they didn't discover that a car for which they had cosigned for their child had been repossessed until they were turned down for a mortgage because of the repo on their credit reports.

Another parent cosigned a credit card for her daughter and all was fine until years later when her now-divorced daughter's ex ran up a large bill on the card and skipped out.

Why don't cosigners have more rights?

Under the Credit CARD Act provisions that go into effect in February 2011, anyone under age 21 who wants a credit card must either show they have the income to handle it, or get a cosigner. If they do get a cosigner, the credit limit cannot be raised without the cosigners approval.

Shouldn't that protection be extended to all cosigned credit cards and loans? In addition, shouldn't cosigners have the right to be notified if the primary borrower misses a payment, rather than waiting until the loan ends up in collections?

If you have cosigned for a loan or credit card, weigh in on this one.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.

Why Regulating Mortgage Lenders Is So Difficult

There is a lot of talk in Washington these days about financial regulation. The House Financial Services Committee wants to pass new regulations that would, theoretically, protect consumers better than the current regulations. Indeed, they have just scheduled eleven hearings on various aspects of reform that would involve the creation of a new agency, the Consumer Financial Protection Agency.

This new agency would take over some of the responsibilities currently held by one of the other half-dozen agencies involved in regulating lenders. The problem is that Congress passes legislation and/or the Federal Reserve makes rules, but they never make any provision for enforcement (or they have too few regulators without sufficient budgets to have any impact).  

With no enforcement, what happens is that the honest lenders follow the new rules and the bad guys, the ones who really NEED regulating, find a way to do business as usual. They only create the appearance of following the rules. Consumers, who do not know what to expect, simply do not know what the rules are and do not know when one has been ignored to their disadvantage.

Let me give you an example of how something that the California Legislature thought would help but that had tragically disasterous consequences. Prior to the year 2000, mortgage banking companies – not brokers and not banks, but sort of half-way in between – originated loans. Previously they had been supervised or regulated by the Department of Real Estate, the DRE, that required loan officers to be licensed.

The mortgage bankers successfully got the legislature to take them out from under the DRE and put them under the Department of Corporations. Someone forgot to check if that Department had any investigators who could supervise their activities. Bad mistake. The first thing the mortgage bankers did was to fire their highly priced licensees. Then they hired twenty-somethings off the street for less money, ran them through a short training program in how to fool their customers, and put them to work answering the phone.

This lack of regulation made California an ideal place to start a subprime mortgage lending company.  Indeed, California became "ground zero" for the subprime industry; a majority of the industry was headquartered here. We know how much trouble that caused. It was one of the principal reasons why the housing industry crashed and darn near took the rest of the economy with it. And it started out with so-called regulatory reform.

Congress has previously displayed its ignorance about the mortgage industry in so many ways that it is simply appalling. I think that the average man on thee street feels the need for more protection, but it seems as if our legislators are more interested in getting re-elected than in providing substantive help that really would help consumers. What seems to happen with every new law is more burden for the good guys. The bad guys - the ones the laws are aimed at - seem to find new ways around whatever laws are passed. This is not progress.

Add to that the natural problems of trying to do something substantive in a political world. For example, ever since 2001 all the signs of potential risks to the system were on the horizon. Congress was warned about the dangers to the financial system but did little more than change the name of the inept and ineffective Office of Housing Enterprise Oversight to the Federal Housing Finance Agency. Big deal! The name wasn't the problem, it was how the agency was run. They did nothing but sit on the sidelines and watch the system collapse.  

Watch this YouTube clip and see for yourself.

Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.