Do We Need Another Credit Bureau?

I can hear the naysayers now, "Not only do we not need more credit bureaus, but we need fewer credit bureaus." No, no, no. Let's think about this for a moment. Right now there are three nationally recognized credit bureaus: Experian, TransUnion, and Equifax. And there are many smaller credit bureaus that service local geographies, have less-than-full/complete national coverage, or act as "affiliates" of one of the national credit bureaus; CSC and CBCInnovis are examples of these. And then you have "sales agents", companies that sell to and service customers who buy credit data from one of the big three: Noesis Data and ChoiceData are examples of Equifax sales agents. You also have a small army of companies who "broker" credit data, meaning they buy and sell it to others; Credco and Kroll are examples. And finally, you have companies that are defined by federal law as being a consumer reporting agencies, but they are not CREDIT reporting agencies; ChoicePoint, Intelius, and LexisNexis (which now owns ChoicePoint) are examples.

This might sound like a crowded marketplace to some, but I'm of the opinion that we don't need fewer credit bureaus or even the same number of credit bureaus. I believe we need more credit bureaus – at least three more, in fact. This would serve to make credit more affordable as the cost of credit reports sold to lenders, which we end up paying for somehow, would be less expensive. And, more importantly, it would force the "old guard" credit bureaus to do a better job with our credit file data. And, most importantly, it would likely force the old guard to seriously consider trashing their current "once-a-month" credit file updating practices to a more real-time system where your credit data would be updated dynamically. Imagine that every charge you make, every online payment... updated in seconds rather than in weeks. That would also mean credit scores that represent our actual current credit experience... not our credit experience from 30 days ago.

More, newer, credit bureaus would also mean more competition for the consumer's dollar. Right now, if you compared the consumer offerings of the big three credit bureaus, you'd see that they are pretty much the same; credit reports, credit scores, and credit monitoring. Sure, there are some unique offerings, but by and large it's all the same stuff. I always use the beverage industry as a great comparison. You have two dominant players (Coke and Pepsi), several secondary players (Dr. Pepper, Seven UP, and RC Cola), and a slew of newer players who are pushing "the big boys" to evolve and do better.


Where would these newer bureaus come from? I'll save that one for myself. I need something to work on when I retire.

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.

It's Been An Expensive Few Years For The Credit Bureaus

Two fairly significant class action lawsuits were settled this year and last between TransUnion, Experian, Equifax and millions of consumer plaintiffs.

The first is the "TransUnion Privacy" lawsuit. TransUnion was accused of selling lists containing personal and financial consumer information to third parties for marketing purposes not in accordance with the FCRA and agreed to a $75,000,000 settlement. I believe this is the largest FCRA settlement amount ever.  The settlement has been approved and all objections to the settlement have been overruled. 

The second is the "White/Hernandez" case.  All three credit reporting agencies were accused of not properly updating debts that were discharged in a Chapter 7 bankruptcy. After years of litigation, the parties agreed on a $45,000,000 settlement, which will be divided and paid equally by the three credit bureaus. I believe this is the second largest FCRA settlement ever. And while the settlement amount has been agreed upon, this one isn't a done deal yet. There is a final fairness hearing in San Francisco in early January 2010, and there will likely be objectors to the terms of the settlement. Stay tuned about this one. 

Links to each of the settlement administrator websites where you can learn more about each of the lawsuits and review the actual court documents:

https://www.listclassaction.com/ and http://www.bankruptcydischargesettlement.com/index.php3

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 Repair: An Overly Regulated Industry?

Pop quiz: Which of these industries is more closely regulated: 1) airline pilots; 2) air traffic controllers; 3) credit repair agencies; 4) big tobacco; 5) school bus drivers? You'd be surprised to learn that, other than big tobacco, the credit repair industry is the most closely regulated, both by federal and state agencies, in fact.

First, let's dispel a persistent and absolutely false myth: credit repair is illegal. No, that's not true. Credit repair is perfectly legal in every state except Georgia, where there are still a variety of ways to run a credit repair organization legally. Having said that, many in the credit industry would love to convince you that credit repair organizations are unethical, immoral, and deceitful.

As long as a company follows the rules set forth by the Credit Repair Organizations Act (or CROA), operating a credit repair organization is perfectly legal. Having said that, CROA has teeth. The law is so overly burdensome that at least one of the credit bureaus has settled a class action lawsuit for alleged violations of CROA. When the law exposes a credit bureau to penalties as a credit repair organization...well, you can see how comical that is.

For the consumer, CROA helps and CROA hurts. It helps to somewhat protect consumers from the rogue credit repair organization, who is in the business simply to rip them off. But, it also prevents legitimate companies from entering the marketplace fearing that much of their revenue would go to pay attorneys. Plus, the credit bureaus have done a masterful job convincing the world that all credit repair is bad, despite partnering with them to provide data. Point being, they don't want YOU to do business with them, but they're perfectly willing to do so themselves.

CROA mandates the following for a credit repair organization to operate legally:

• They must disclose to you that you can challenge incorrect information yourself at no cost.
• They cannot charge you until their services have been completely rendered.
• They cannot guarantee the removal of any of your credit data.

Violating any of these provisions, and there are more, will subject the credit repair company to lawsuits and possibly the wrath of the FTC, who closed down over 30 credit repair organizations in 2008 in what they referred to as "Operation Clean Sweep."

So, if you choose to use a credit repair organization, fair enough. Just be aware that you can do what they do for the cost of a stamp and a few minutes of your time. And, that your air traffic controller isn't under nearly as much scrutiny.

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.

Financial Literacy Q & A with UGA College Students - Part II

Yesterday I shared some of the excellent student questions that I received at a lecture I hosted earlier this week at the University of Georgia.  Here are the remainder of those questions. Enjoy!

Q: How many times a year do you get a credit report? What determines if your credit report is good or bad?

You should order a copy of all of your credit reports once a year. It’s free. Your score is the definition of good/bad. If you have a good score, then you have good credit, and vice versa.

Q: How often does your credit report change?

For someone like me who has had credit for years and has many open accounts, it changes multiple times each month. If you only have one or two accounts, your reports will only change once or twice per month. A good rule of thumb: However many open and active accounts that you have equals the number of times your report will change each month.

Q: Why does your credit report change so often and what are the best times to check it?

See the above question/answer. I always suggest checking ALL of them once per year.

Q: Is there a credit bureau that is better than the rest?

No, they’re all equally good/bad… depending on your perspective.

Q: What is the best way to estimate your credit score? Can you calculate it personally?

You can estimate your credit score for free at these sites…
https://www.credit.com/r/credit-report-card
http://www.bankrate.com/calculators/credit-score-fico-calculator.aspx

Q: Does a person have three credit scores or an average of the three as their official score?

You have one score per credit bureau, so you have three scores total.

Q: How do free credit report websites end up costing you?

Most of them make you sign up for a trial subscription and if you forget to cancel they start charging your credit card. The websites I gave you above truly are free and give you an estimate of your credit scores.

Q: Do lenders make inquiries about our credit from the same companies that we’ve used to see our credit reports and scores?

No, they can pick and choose why they buy your credit report from. Most lenders only get one of the three. The exception is a mortgage lender, who will generally get all three.

Q: Why do you have to pay for your credit score?

Short answer: Because it’s a way to make money. Better answer: There is no law that requires the credit bureaus to give away your score. As such, they have chosen to charge for it. Supply and demand… they know there is a demand and they own the supply.

Q: Is there a way to check my credit report in person?

Yes, there is. The Fair Credit Reporting Act requires the credit bureaus to allow for “in person” disclosure. If you went down to 1550 Peachtree Street in Midtown, Atlanta you could drive up to Equifax’s corporate headquarters and tell them you wanted in-person disclosure.

Q: Why do you only get one free credit report each year? Why does your credit score go down when other people pull your credit?

You actually get three free per year because you’re a GA resident. Residents of other states get at least one free copy of each of their three credit reports for free, and some states will give you more than one free copy. Your credit score COULD go down if too many lenders pull your credit reports because it indicates that you’re loading up on credit obligations and that’s predictive of future credit risk.

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.

One Word Almost Made a Difference

I've been asked so many times, "John, how in the world did you get in the business of commenting on credit reports and credit scores?"  I figured it was time to talk a little about my path. It was truly the 'road less traveled' professionally speaking. Here goes...

I graduated in 1991 from West Georgia College (University of West Georgia today) with a degree in Criminal Justice. The timing of my graduation is important because it easily predates the world of the Internet and email. This was a time that many of you will never know, other than reading history books and listening to your parents tell stories. My point is that there was no Monster.com or CareerBuilder.com to help me find a job. I had to do it the old fashioned way, which was to print, sign, and mail resumes and cover letters to hundreds of companies in hopes that they were hiring — or at least interviewing.

I went to many interviews and of the many, only a few really were a good fit. Equifax was opening and staffing a new customer service center just north of Atlanta in 1991 and they responded to my letter. They set up an interview and a typing test. Yes, back in the dark ages many people had to prove that they could type a certain number of words per minute. 

In my case, the job was a call center customer service position, so typing 30 words per minute was a job requirement. Given the fact that I had never typed or used a computer, 30 words seemed like 1,000. I took the typing test the first time and I finished with 29 words. When they told me of my results I thought that I was done. Thankfully they let me take it again. And again, I finished with 29 words. I was one word away. What a travesty it would have been to be dismissed because I was one word short. They agreed and let me move on the next step and the rest, as they say, is history. 

I spent six years at Equifax and learned everything there was to know about credit reporting. I became FCRA (Fair Credit Reporting Act) certified and thoroughly enjoyed my time. And just think: You were one word away (twice) from reading credit related stories and advice from someone else that typed faster.

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.

Re-Aging Collections... What is it and does it really happen?

Re-aging, in the world of consumer credit, has a very nasty meaning. To re-age means to change the “purge from” date on a derogatory account. What this means is the negative account likely will remain on the credit reports of the consumer longer than the allowable time, which is seven years in most cases. Every negative account, whether it’s a collection, credit card, auto loan, or any other, has to have a date that the credit bureaus will use to calculate the seven years for removal. This date is commonly referred to as the “purge from” date. The account is purged seven years from that date.

What this means is that it’s critically important that the “purge from” date accurately reflect when an account went severely past due. If it does not, the credit bureaus will report it longer than seven years, but not maliciously. This brings up a very sensitive topic that seems to have taken on a life of its own: re-aging. There is belief, and some proof, that re-aging exists in the world of collections.

Now, re-aging can be intentional (willful) and it can be unintentional (negligent). The bottom line is that IF it does happen, it doesn’t really matter WHY it happened; it can still cause a collection to remain on a credit file longer than allowed by federal law. Some people believe that re-aging is an intentional attempt to keep a collection on a credit report longer. This is illegal – very illegal, in fact. It’s a Fair Debt Collection Practices Act (FDCPA) and a Fair Credit Reporting Act (FCRA) violation and can lead to lawsuits against the collection agency.

Have I ever actually seen an example of re-aging? No, I have not. I’ve seen examples of collections that have other dates updated to reflect new payments or other activity, but I’ve never actually seen a “before and after” picture of the same collection with two different “assignment” dates. Does that mean it doesn’t happen? No, it just means I’ve never seen an example that I believed reflected re-aging.

The date when the seven-year reporting period begins is the same date when the account goes 180 days delinquent with the original creditor. This is what the Fair Credit Reporting Act says. If you have a collection that does not reflect the dates accurately, contact the credit bureaus and challenge the accuracy of the account. Hopefully the collection agency will realize the mistake and correct the error. If they will not correct it, you might have to get more serious about corrective actions.

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.

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

Consumer Credit-Related Lawsuits Skyrocket

In an article I wrote on December 16th 2008, I predicted a sharp increase in consumer credit related lawsuits in 2009. Boy, did I nail that one. According to Jack Gordon, CEO of WebRecon LLC, a service that tracks FCRA and FDCPA filings, “we’re on pace to eclipse 8,500 such lawsuits in 2009. That’s a record for any one year.”

The issue at hand seems to be two-fold. First, more consumers view litigation as an investment in their own credit future. These are the folks who are fed up with the typical credit dispute protocol, which might work fine for 98 percent of disputes, but isn’t 100 percent effective. The percentage who can’t seem to have legitimate errors removed from their credit reports using the bureau’s required methods are starting to find it necessary to escalate their efforts into the courts in order to regain their good credit names.

The second bunch seems to be coming from the shake down artists. These are consumers who have damaged themselves through poor credit management and have hooked up with lawyers, on a contingency basis, to see if they can clean up by suing debt buyers, collection agencies, lenders, and credit bureaus despite having no damages caused by the aforementioned parties. In many cases, it’s less expensive to throw a little money at the plaintiff rather than taking the case all the way to court, where even a jury verdict in the defendant’s favor is hugely expensive.

It’s been my experience that roughly 6 percent of FCRA and FDCPA cases make it to court. Two of the 31 cases in which I’ve been an expert witness have seen the inside of a courtroom. The overwhelming majority of cases are either settled prior to going to court, dismissed, or disposed of via summary judgment. 

 It probably doesn’t surprise you, but these lawsuits are not all filed by unique consumers and unique lawyers. According to Gordon, “Approximately 38 percent of all FDCPA cases are filed by repeat litigants.” It seems that there are many lawyers and many consumers who are habitual filers, meaning that they have sued multiple times under the FDCPA and FCRA.   

While it’s completely plausible that a consumer can simply attract bad creditors or illegal treatment from a collector, it doesn’t take a rocket scientist to figure out that many lawyers and consumers have determined that it pays quite well to be a serial litigant. A simple Google search on “collection attorneys” yields over 2 million results. The bottom line: Suing collection agencies seems to be good business.

As a former collection agency owner, Gordon saw a strong need for a service that helped collection agencies avoid serial litigants. This has led to the 2008 development of the ”FDCPA Litigant Alert.” This service culls the federal and state court records, pulls out all FDCPA and FCRA filings, and twice a month compiles a list of cases. This list can be purchased by collection agencies and used to avoid the overly litigious consumers. “A lawsuit does not have to be legitimate to be very, very expensive”, says Gordon. I think many collection agency owners would agree.

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.

New FICO Score: FICO 08 is Now Live at All Three Credit Bureaus

According to FICO, the model commonly referred to as FICO 08 will be available at Experian starting August 1, 2009. What this means is Experian, the last credit bureau hold out, has installed and will make available the popular credit scoring model to lenders despite a well-publicized riff between the credit reporting agency and the credit scoring giant. 

In the world of credit reporting agencies, it generally takes two of the bureaus to implement a new tool in order to get the third to agree. This case is no different.  Equifax originally publicly committed to not install FICO 08 due to a lawsuit filed in federal court that named the Atlanta-based credit bureau as a defendant. The parties settled the suit, agreed to expand their relationship, and eventually FICO 08 was installed.

Experian fell in line soon after Equifax made the model available to lenders. There’s no doubt that their customers played a not-so-small part in prompting them to install FICO 08. The threat of losing large clients to a competing credit bureau for the sole purpose of wanting access to the newer, better credit score is real. Experian was wise to acquiesce.

Now that it’s a “tri-bureau” model, you’re likely to see an accelerated adoption by credit score users. And you’re likely to see the credit industry influencing entities, such as Fannie Mae and Freddie Mac, and the credit rating agencies ramp up their evaluation of the model to determine how and if they would like to see their lending bodies use it to make underwriting decisions. “FICO 08 is being adopted at a greatly accelerated pace”, according to Craig Watts, FICO’s Public Relations Manager. “According to our records, there are already 400 companies either using it or testing it.”

This also signals yet another blow to competing credit scores as FICO 08 means the introduction of another demonstrably superior FICO score to the market. Taking market share from FICO has been difficult. In fact, according to court documents filed in the aforementioned lawsuit, FICO’s market share is at 75 percent. This illustrates the difficulty in replacing an engrained credit scoring system.

FICO 08 also signals a faster end to illicit “piggybacking” whereby consumers could artificially inflate their scores by paying a stranger to add them as an authorized user to a high limit/low balance credit card.  FICO 08 has preventative logic that dilutes that threat.  All in all, Experian did the right thing regardless of whether or not they really wanted to.

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.