How Many Credit Scores Are There?

Scott wrote in earlier this week with a very good question:

I bought my credit score when I received my report from TransUnion. The interesting thing is that the score I received was a VantageScore. Is this the same as a FICO score?

I also received my PLUS score from Experian when I received their credit report. So I'm wondering if Experian is actually using the new FICO model? Or are then simply calling their FICO scores by a different name? I'm very confused as myFICO shows me yet another credit score...?

Hold on your hats, my answer is going to be a little messy and it may make you mad.

To start: no, a FICO score is not the same as a VantageScore or a PLUS score.

Each of the three national credit bureaus - Equifax, Experian and TransUnion - have a stable of credit scores that they sell to businesses and consumers. Each score is developed for a specific purpose. It might be tailored to an auto lender, a credit card marketer or a consumer.

Some of these scores are from FICO and some are developed in-house by the credit bureaus. FICO scores are more expensive, so they're not used as often in consumer products. A consumer FICO score is different than a FICO score used by a lender.

Here's a quick breakdown of some of the most common credit scores used:

Equifax
Equifax is the one credit bureau that uses FICO scores for most of their products. If you order a credit score from Equifax.com or AnnualCreditReport.com, it is going to be a FICO score. Equifax was a part of developing the VantageScore with the other two bureaus, but isn't currently selling it anywhere that I've seen.

Experian
If you order your credit score from Experian.com or one of their affiliates (FreeCreditReport.com, etc) you're going to get a PLUS score. This score is pretty similar to the FICO score. If you order from AnnualCreditReport.com, you're going to get a VantageScore. This score is pretty different from FICO. You should expect a 100 point difference between the two scores due to differences in the formula and range (501-990 vs. 300-850).

TransUnion
If you order a credit score from TransUnion.com or TrueCredit, you're going to get their TransRisk Score. There are a couple different versions of this score, some are closer to FICO than others. If you order through AnnualCreditReport.com, you'll get the VantageScore. TransUnion also has a small satellite site called TransUnionCS.com that sells FICO scores. 

FICO
myFICO.com obviously sells FICO scores for all three of the bureaus. These scores are more expensive to purchase than other options. Fair Isaac market a wide variety of FICO scores to business customers.

Feeling a little frustrated and confused? That's how most customers end up after discovering that the credit score they bought online wasn't a "real" credit score.

What's the solution? It's tricky because there isn't really a "real" credit score at all. Even if you pay the premium price for a consumer FICO score online, it isn't going to be exactly the same as the FICO score your lender would use.

My advice? Stay away from the VantageScore but don't worry about the other variations. The other scores are similar enough to the FICO score that it shouldn't confuse you. Just keep in mind that they're not all exactly the same.

You should splurge on FICO scores if you're preparing for a major purchase like a mortgage loan and are in the 600-720 range. Consumers in this range are most likely to have their rates impacted by small changes in their score.

Have you been confused by a credit score you ordered being different than a score used by your lender? Share your story in the comments section below.

Emily Davidson – Credit.com's financial expert and former TransUnion credit bureau insider. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Free Credit Monitoring from TransUnion is Now Available

TransUnion's legal settlement program is up and running. Just go to ListClassAction.com to register for either 6 or 9 months of unlimited access to your TransUnion credit report and credit score along with daily credit monitoring.

Anyone who opened a new credit or loan account in the past 21 years qualifies for this class-action settlement. You have to register before September to qualify. You should know that the score that comes with this service isn't a FICO score, as our expert John Ulzheimer pointed out to CNN yesterday:

"The score you're being shown isn't your FICO score," says credit expert John Ulzheimer. And the FICO score, established by Fair Isaac, is the score that most lenders look at when extending credit. The difference between your TransUnion credit score, called TransRisk, and your FICO score won't be drastic.

But, there could be a difference of 40-50 points, says Ulzheimer.

If you want to see your FICO credit scores instead of a TransRisk score, you'll have to order a service from myFICO. These "deluxe" scores come with a premium price tag to match, though.

If you're planning on buying a car, getting a gas card or refinancing your home this summer, this special freebie is coming at the perfect time. You'll be able to check your TransUnion credit report and score daily for changes and can work on improving your standing before you apply. And remember, checking your own credit online doesn't hurt your credit score!

Emily Davidson – A former credit bureau insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

FICO and Equifax, friends again!! More details.

Yesterday Credit.com was among the first to break the news that Fair Isaac had dismissed Equifax from the Federal lawsuit filed against them, Experian, TransUnion and VantageScore Solutions.  And while the finer details are still becoming clear, here's what we know so far...

1.  The new ETA on FICO '08 being installed at Equifax and made available to their clients is "early 2009."  It won't be called FICO '08 when it goes live.  We believe the name will be similar to that of the classic FICO risk models currently available at Equifax, which is BEACON.  We are suggesting "BEACON '08."

2.  Equifax is still bullish on VantageScore and told Credit.com that there is "no change to our role in VantageScore. It's an excellent service that offers customers a credit risk score that is extremely predictive, and we are fully committed to its success."

3.  Credit.com has confirmed with Fair Isaac that the lawsuit is still moving forward against VantageScore Solutions, TransUnion and Experian.  This means that FICO did NOT drop Equifax because they suddenly felt that their case had less merit.

Here are some facts that can't be overlooked....

1.  The lawsuit was filed when Tom Grudnowski was still the CEO of Fair Isaac.  The new CEO, Mark Greene, is cut from an entirely different cloth.  I'll let you fill in the blanks.

2.  Equifax was the first credit bureau partner to offer a FICO score, back in 1989.  And while that has nothing to do with what happens in 2008, it's nice to see that high school sweethearts who had a bad break up are getting along again.

3.  Equifax is the only credit bureau that does NOT sell a fake or competing score to consumers via their consumer website, Equifax.com.  TransUnion and Experian still sell the PLUS, TransRisk and VantageScore scores via their numerous retail sites and via AnnualCreditReport.com.  Is it a coincidence that they are still defendants in the suit?  And was there an agreement that will open the door to Equifax selling non-FICO scores to consumers?  They've got one too...it's called GRAM (Generic Risk Assessment Model). 

4.  The lawsuit still has merit, so why abandon it against the other two CRAs and VantageScore Solutions?  Whether you like or dislike FICO, or the bureaus, if you read the lawsuit you have to agree that it makes sense.  Has anyone ever gotten Experian to answer the question "why do your credit scores have almost the same exact range as the FICO score?"  I know the answer, but can't get them to admit it.  Perhaps under oath they'll have to explain.

5.  FICO and the bureaus are taking some serious heat in the media for what's happening in the credit world right now.  BusinessWeek, who didn't let the truth get in the way of an entertaining article, ripped FICO's lungs out recently, and many other outlets (The NY Sun most recently) have chosen to forgo true investigative journalism and simply jumped on the bandwagon.  This allows FICO and Equifax to collectively circle the wagons and ride out the feeding frenzy.

We'll continue to follow this story and report on any new developments.

This is the equivalent of the O.J verdict for us credit junkies.  Big news!!

John Ulzheimer – Credit scoring and credit reporting expert, author and President of Credit.com Educational Services. 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. 

Equifax and FICO Make-Up and Decide to Play Nice: What it Means for Your Credit Score

Breaking news:
Equifax and Fair Isaac are back together. The new FICO score model that ignores authorized user accounts is on its way.

Background:
The credit bureau, Equifax, and credit score developer, Fair Isaac (FICO), had a close relationship in the past. Equifax is the one bureau that actively promotes FICO scores with their products. They're the only bureau to upsell customers a FICO score on AnnualCreditReport.com. That's why it was somewhat shocking when FICO went after Equifax starting in 2006 for their involvement in the development of the VantageScore. That sweetheart relationship went pretty sour.

The animosity between the two companies was a major factor in the delayed roll-out of the new FICO scoring formula announced in June 2007, called FICO 08. This is the new version of the FICO score that doesn't include authorized user accounts and sent the piggybacking industry into hysterics. These shady credit repair companies were more than relieved when the score was rolled-out slower than expected and sent out all sorts of press releases touting that their services were still valuable (only for a few more months and still not worth the money, but they don't mention that).

Earlier this month, we reported an update to the release of the FICO 08 score. Experian made the model commercially available in May 2008 and TransUnion is scheduled to start using it sometime this summer. At that time, Equifax had no ETA for implementing FICO 08.

What it means:
Today's announcement that Equifax and FICO have put the arguments behind them and started working together is significant. It means that FICO 08 is soon to come at Equifax and the days of authorized user accounts having any score impact are even more limited than they were before. Its possible that Equifax will start selling FICO 08 through AnnualCreditReport.com.

Consumers who are enjoying extra credit score points from an authorized user account - whether legitimate or paid for from a piggybacking service - may see a fairly dramatic drop in their credit score as the new FICO model starts being widely implemented with all three credit bureaus.

Questions about this Equifax and FICO news? Contact our team of credit experts at emilyblog@credit.com.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Reader Question: How do You Get a Free Credit Report?

Yesterday, we mentioned that everyone can receive a free credit report from each of the bureaus every 12 months. Reader Nicole emailed us wanting some more details:

What's that website for my free credit report? Do you get it the same day?

The website is www.annualcreditreport.com. Don't confuse it with retail sites like www.freecreditreport.com that offer free credit reports in exchange for a trial of credit monitoring. 

AnnualCreditReport.com is a joint project of all three of the major credit bureaus developed in order to comply with the 2003 FACT Act.  When you visit the site, you have to order your credit reports from each bureau individually. You can choose to order either single reports or all three. Some people like to order one every 4 months to keep an eye on their credit all year long.

The order process with each bureau can be complicated. You'll need to provide your Social Security number and personal information before answering some security questions to verify your identity. During the process, you'll also be offered an upgrade for $6-$8 to receive a credit score. I recommend only upgrading with Equifax to get a FICO score. The other two bureaus only offer VantageScores through AnnualCreditReport.com.

Once you finish the order, your credit report will appear online. You should print a copy right away as some bureaus don't let you return to it online. If there was a problem with your order, you may be prompted to call a customer service number to complete the request and have a report mailed to you.

You can get step-by-step illustrated instructions, customer service phone numbers and more tips for ordering from AnnualCreditReport.com in this free guide.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Your Credit Score - It is the Perfect Time for a Credit Check

When was the last time you checked your credit? I recently went through the exercise of ordering my credit report and score for each of the different retailers to see what is out there. It's amazing how different the products available can be. It can be confusing, even for someone who's been in the business for 7 years!

Before I share some warnings and tips, here are a few reasons why you should order your credit report and score right now:

• Crime, including identity theft, increases during periods of economic downturn. Make sure your credit isn't being used by a crook.
• Credit scores are even more important now that lenders have made their underwriting stricter. You need a score well above 750 to qualify for the best rates these days.
• Record gas prices are making it a good idea to look for a gas rewards card. You'll need a score over 700 to qualify for most of these deals.
• It's a great time to buy a new car. Especially with the low loan rates available for good credit.
• It is also a really good time to get out of debt. Use your credit report to see where your balances stand.
• Summer is also the time when renters are looking at new places. Print out your credit report and take it with you to apartment viewings.
• As always, checking your own credit does not harm your credit score.

Convinced that you need to check your credit yet? Good! Here are some tips and tricks:

• If you just want your credit reports, with no scores, order from www.annualcreditreport.com for free.
• Don't pay $6 to upgrade to a score with TransUnion and Experian. They offer the new VantageScore which comes with a 500-990 range. You'll confuse more than you'll learn with these scores. Only Equifax will upgrade you to a FICO score.
• If you want to see all three of your credit reports and scores, skip AnnualCreditReport.com and order a retail product instead. The advantage here is that you'll get all three bureau's data in an easy to read format and all three scores using the same formula. You can get this for $14.95 from TransUnion. Or, if you want FICO scores, for $49.95 from FICO. In between those two, Equifax has a 3-in-1 report with one FICO score for $14.95.
   
• TransUnion (TrueCredit) is the only bureau that will let you pay by check online.

Not sure which credit report product is right for you? Credit.com has recently updated their Credit Report section with tools to make it easy to compare features and prices of the eight most popular products.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Hot Document: Credit Report Training Guide

I was doing some research on credit score formulas online this week and ran across a TransUnion training guide (PDF) for retail credit report users. The guide was apparently created in 2003 to help mortgage brokers, auto lenders and the like decode the old-style unfiltered credit reports.

Real credit geeks will appreciate the detailed insight into all the numeric and cryptic codes that sometimes appear on a credit report. You get a real sense of the credit bureau zeitgeist. Here are two examples:

Date Indicators
A Automated
C Closed
D Declined
F Repossessed/Written Off/Collection
I Indirect
M Manually Frozen
N No Record
P Paid Out
R Reported
S Slow Answering
T Temporarily Frozen
V Verified
X No Reply

MOP Current Manner of Payment
00 Not rated, too new to rate, or approve but not used
01 Pays as agreed
02 30–59 days past the due date
03 60–89 days past the due date
04 90–119 days past the due date
05 120 days or more past the due date
07 Paying or paid under Wage Earner Plan
or similar arrangement
08 Repossession
8A Voluntary repossession
8D Legal repossession
8P Paying or paid account with MOP 08
8R Repossession; redeemed
09 Charged off to bad debt
9B Collection account
9P Paying or paid account with MOP 09 or 9B
UC Unclassified
UR Unrated

The document also lists the expiration dates for various negative records, special triggers and classifications that might come into play on a TransUnion report. Click here to read this five page document.

 Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Funny Money Friday: The Map is Always Greener

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

This week's post is more "fun" than "funny." I found a new online widgit to help you procrastinate.

The Federal Reserve Bank of New York has assembled a collection of dynamic maps that track real estate trends. You can drill down by state, county and district to see the share of loans, ARM's, loan delinquencies, no doc loans and foreclosures. 

If you think foreclosures are bad in your neighborhood, take a look at poor Florida and Puerto Rico. Marvel at the high rates of ARMs across the country. Grit your teeth about Arizona, where the appear to be prepping for a big ARM reset.

Click around and play economic pundit from your own desktop!

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Tune-in: Two Important Stories

There are two great personal finance stories you should tune into online. First, Jean Chatzky appeared on the Today Show yesterday to discuss the importance of credit scores in light of the credit crunch. She mentioned Credit.com as a source for her credit score facts:

After you watch that clip, tune into this American Life to listen to their episode on the housing crisis. The latest episode of This American Life brings the credit and real estate problems in the US back to a "Giant Pool of Money." It's a great, easy-to-understand explanation of what is happening to the economy.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Reader Question: Is Piggybacking Gone?

Dear Gerri:

I read that you said that piggyback someone else's credit card could help boost your credit score.  My brother called his credit card company to add me as an authorized user and they said it would not help me. I would be a secondary on the card, not a primary.  If I was added as an actual person on the account they have to run my credit score and that would actually hurt me.

Please clarify this for me.  I am very confused.  I am working on increasing my credit so that I can by a house and get a better deal.

Thank you so much for your assistance with this matter.

- Confused

Dear Confused Homebuyer:

Piggybacking used to be a great way to boost your credit quickly. It sounds like you understand the concept, but let me repeat it. You would ask a friend or relative with a major credit card to add you on to their credit card as an authorized user provided they had

a. paid it on time for years and

b. didn't have a high balance relative to the credit limit.

You never even had to use the card for it to appear on your credit reports. Most card issuers reported authorized users to the credit reporting agencies and reported the entire account history when they did. That would result in a positive account with a longstanding credit history on your credit report – and that usually meant a boost to your credit score.

However, due to abuses by credit repair companies that were brokering the rental of authorized user slots on credit cards, this tactic is in the process of being blocked by the credit agencies. We have reported on that change previously on this blog several times. The card issuer could be warning you of this change. It's also possible your brother's card issuer does not report authorized users to the credit bureaus, a policy that may even have been in place before the brouhaha over rented tradelines.

I don't know the extent of your credit issues, or what kinds of problems they are causing you in getting a lower home loan rate, but I would suggest you be cautious about quick fixes. As we've seen with the mortgage meltdown, stretching things to squeak into a loan isn't a great long-term strategy.

If you do want to fully understand your credit report and scores, I would highly recommend my colleague John Ulzheimer's book, You're Nothing But a Number. Read John's straightforward advice and by the time you get done you'll probably know more about credit reports than your loan officer!

Best of luck with your home loan shopping.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Call Me With Your Credit Questions!

I love to answer credit questions, but it can be tough to keep up with all the requests these days. Here's your chance to get my personal advice on your debt or credit issue -- for free!

On Sunday May 4th at 8 pm Eastern Time I will be a guest on Marc Perlman's live radio show:
YourMoneyMattersRadio.com. You can call in to have your questions answered live on the air at 877-333-0696 or email your questions ahead of time to Question@yourmoneymattersradio.com. The program is live on 1520 am and heard in over 13 states.

Don't be shy! Feel free to call in. I'd love to help!

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online. 

Funny Money Friday: A Prime Time News Perspective on Credit Scoring

Money doesn't have to be boring! Each week, CreditBloggers.com takes a look at the lighter side of the personal finance world in a series called Funny Money Friday.

One of our credit experts, John Ulzheimer, appeared on CBS Evening News last night talking about credit scores. It was part of their series Life and Debt in America that is painting a grim portrait of our personal finances.

The story is technically accurate, but somewhat hilarious in the ominous way the facts about credit reports and scores are presented. FICO isn't your friendly neighborhood credit scoring company, but a massive secret location Death Star full of servers blinking away with all your personal data. The graphic below is one of my all time favorite TV illustrations:

I have a feeling the PR people aren't going to be too pleased. Click here to watch the 3 minute segment for yourself. Happy Friday!

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Last Call for the Free Credit Report Card

Today is the last day you can get a free Credit Report Card online from Credit.com. This service is being pulled offline at the end of the day PST April 3, 2008. Designed by credit industry insiders, this report gives an expert perspective on your credit report and credit score. Plus, easy to understand letter grades and graphs.  Click here to order your free Credit Report Card while you still can.

The Credit Report Card is being taken down to undergo an enhancement internally. The exact date that the service will again be available isn't known at this time. After tonight, our customers will have to use the Credit Score Compass to estimate their credit score instead.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

What's the Story with "Emerging" or "Unbanked" Credit Scores?

Every six months or so, a new credit score option gets talked up in a press release. The new scores purport to solve the problem not being able to consumers without credit cards or loan accounts by evaluating payment history on rent and utility payments. More than 50 million consumers fit in to this category, so it's a potential ripe market.

Unfortunately, these programs rarely seem to take hold. The problem with so many innovations in the credit industry is that they aren't put into practice by the industry. Anyone can make a credit score, the trick is to get it to be used by banks and adopted as an industry standard. 

Here's a quick summary of a couple of the companies with these initiatives:

FICO Expansion Score - This one actually has some legs. The established credit scoring company launched this score a few years ago. It evaluates non-bureau data through ScoreNet, things like checking account records, payment plans and payday loans.  It uses the same 300-850 scale and has the FICO name, making it a bit friendlier for banks to plug into their underwriting systems.

Experian Emerging Score - This is the latest offering from Experian and uses data from a company called eBureau (formerly xTech) that tracks payment programs and other small accounts. It was just announced this month.

PRBC - This company has been touting themselves as a great way to build credit...but there are some big holes in their plans. Not only does the company charge consumers to "build" their credit file, the information is self reported and only minimally verified. Consumers aren't like to go through all this trouble to report negative records and late payments, so the company is skipping the information that lenders really want. They use the FICO Expansion score.

There are numerous other companies and scoring models out there trying to do the same thing (if you have one in particular you'd like more info on, send us an email). But until the systems gets more established and banks actually using these analytics, they're not likely to revolutionize lending.  The recent credit crunch has made banks especially skittish about anyone below traditional prime (700+ FICO) and probably set this back a bit.

One more point: these expansion programs aren't combined with the standard credit bureau data. If you qualify for a traditional credit score based on Equifax, Experian or TransUnion data, you're not going to have an expansion score used for your application. This isolates the data used for unbanked customers from the "real" credit data, making it a little unfair for both sides since they're being evaluated with different rulers. A smarter industry move would be for the big bureaus to start working with a wider net of financial companies to augment their data.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Mark Your Calendar: Women's Financial Conference in San Francisco

Join me on April 12, 2008 for a day full of money and credit education! I'll be presenting two sessions on credit management at the Money Wi$e Women Conference in downtown San Francisco. Other keynote speakers include:

• Marcia Brixey, author of Becoming a Money Wi$e Woman: Getting your Financial House in Order
• Ann Tardy, author of LifeMoxie! Ambition on a Mission: 9 Strategies for Taking Life by the Horns
  
• Mikelann Valterra, author of Why Women Earn Less: How to Make What You're Really Worth

Your $79 registration include sessions from 9 to 5pm, materials and lunch. Click here to register.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com editor.

Reader Question: Is 10% the Best Debt-to-Limit Ratio for My Credit Score?

Credit scoring models are full of eccentricities and minutia that can make a big difference in your final score. Debt-to-limit calculation (which accounts for 30% of your credit score) is one of those confusing areas. Here is Jed's question:

I have read several sources who recommend using only 30% of your credit limit to enhance credit scores.

I recently read TWO articles that now recommend using less than 10% of the credit to best enhance the credit score.

Which (if either) is correct?  What is the recommended credit line usage limit to help credit scores?

Simple Answer: under 10% (and more than 0%) is the absolute best for your credit score.

For example: you would be earning the most score points in this category if you had four cards with a total credit limit of $15,000 and a total credit card balance level between $1 and $1,500.

But this is one of those "great idea, or greatest idea" sorts of things. A 30% DTL level would be a credit score improvement if you had previously been over 50%. The credit scoring model assigns fewer points toward your credit score the higher your debt-to-limit ratio is over 10%. 

And remember, this is your statement balances on the cards vs. the total credit limits. The individual balance ratio on cards has some value too, but it is really the total ratio for all cards on your credit report that is important.

Note: You can still have a high debt-to-limit ratio even if you pay your credit cards off in full each month.

Some consumers looking for a quick credit fix stop using their credit cards except for a couple very small purchases a few months before a loan application as a way to reduce their debt-to-limit ratio and improve their scores.

Next question? You can email our team of credit and finance experts at tidbits@credit.com anytime.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.   

URGENT: Are You a Couple with Debt Issues?

Are you in a relationship and struggling with high balances? Or do you know of a couple in debt? We need someone interested in appearing on CNBC's The Millionaire Inside television special to contact us right away!

Show participants will receive a custom financial plan from the team of experts, including our own credit score guru, John Ulzheimer. This opportunity is very urgent.

When the Debt Collector Is Not Wrong

Here is a reader question about debt collectors we received this week:

Back in 03, I purchased a computer for $1500.  A week later the same computer was advertised at $499.00 (what a difference huh?) so i tried to get in touch with any sales rep to bring the price down.  I got no where, I sent them letters and nothing. In 2004, I contacted corporate office and they plain and simple told me that they could not help me. I never made a payment on it. 

So just yesterday some attorneys called my cell to get payment. I answered no questions. I am going through a background investigation process for a job and they checked my credit and requested information from the collection agency, and that collection agency gave my information to the attorneys.

I do not want to make a false move and get myself caught up.  Now they want me to pay $2300.  I live in San Diego. Can you help?

A: You have discovered an unfortunate and expensive lesson -- when it comes to disputed bills, lenders often have the upper hand. I've talked to many consumers over the years who refused to pay a bill for one reason or the other, only to discover that it was turned over to collections and their credit scores took a gigantic nosedive.

In your case, I am not aware of any consumer protection rules that would require the computer company to adjust your price after you bought your system. If your contract allowed for returns, your best bet would have been to return the computer, then repurchase it at a lower cost. But unless the company advertised some type of "lowest price" guarantee, my guess is you were out of luck. (There are situations under the Fair Credit Billing Act where you can refuse to pay a charge on a credit card bill, and I am assuming those rules didn't apply here.)

However, the fact that you incurred this debt a little over four years ago may work in your favor. According to the very helpful guide Money Troubles, the statute of limitations for written contracts in California is generally four years. It would be a good idea to talk with a consumer law attorney in your area to learn whether that is the case in this situation. If you continue to refuse to pay, the attorney/collection firm would have to take you to court to collect and you could raise the statute of limitations as your defense and they would lose. If the debt is too old, the consumer law attorney can help you write a letter stopping their collection efforts.

Keep in mind that whether you pay or not, this debt can only be reported for seven and a half years from the date you first fell behind. The only way it should be reported longer is if the attorney/collection firm sues you and successfully obtains a court judgment against you.

However, looking at this objectively, you did buy the computer. The fact that you felt ripped off and ignored shouldn't mean you pay nothing at all. When you talk with the consumer law attorney, ask him or her whether you can settle the debt for less than you owe without jeopardizing your rights. Sometimes paying an old collection account will "toll" or revive the statute of limitations -- starting the process all over again. If you can settle the debt, it may be best to do that and move on.

If you can't settle it in a way that seems fair to both sides, or if the debt is too old, you may want to buy an inexpensive computer from the same company (pay cash this time!) and donate it to a worthy cause. Create some good debt karma to balance out the bad.

Gerri Detweiler – Personal finance author, radio host and credit expert. Gerri contributes budgeting, debt recovery and savings information online.

Resolution: Manage Your Credit Score

If you plan on getting a loan for anything in 2008, you'd better take a close look at your credit standing. Lenders and creditors have cracked down on granting funds to borrowers with less than perfect credit scores. If your score is under 700, you should probably be a little concerned about how you'll get a loan for a car or home purchase this year.

The first step to managing and improving your credit scores is to know where you stand. Just like a doctor, you can't work to "heal" your credit without first knowing exactly what is wrong. Credit scores are complex, with five main performance categories impacting your results. You could end up damaging your credit by guessing what action needs to be taken (ie: closing your credit cards when you really should have worked on reducing your debt-to-limit ratio).

Luckily, there is an easy and very affordable way to see your credit performance. Credit.com's new Credit Report Card service lets you see your score range and gives you grades for how you're doing in each of the five categories. And the best part is it's absolutely free: no strings attached, no memberships to cancel, nada. Here is what one user reports:

The "Credit Report Card" generated by the use of your website is FANTASTIC! That you would be willing to generate someone's credit score range for free is really something to boast. Also, that you provide "credit score grades" and the reasoning for those grades is definitely something people can use to seriously evaluate their current credit rating and assist them with ways to improve said rating. I’m really excited to have found your website.
               — Francisco Torres, Student - University of Arizona

I personally like the service because I helped to make it! John Ulzheimer and I co-created the Report Card as an innovative educational tool for consumers who wanted to really understand how they measure up. Kick start your credit score resolution today! Click here to see your Credit Report Card online.

Emily Davidson – Credit.com credit expert and former TransUnion insider. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Resolutions: Get out of Debt

A perennially good resolution is to get out of debt. Face it: debt is expensive, stressful, not good. Credit card debt is the worst: with high interest rates and a direct negative impact on your credit score. We all agree that too much debt is bad, but each year millions of consumers fail in their resolution to become debt-free. Why?

All sorts of companies claim to offer debt miracle cures. You could be debt-free by the end of the day, right? While these programs can be be helpful to some, at the very root, there are two very simple methods to get out of debt:

1. Make More Money - All you need to do is having more money coming in so that you can pay it out toward reducing your debt balances. Here are some ways to make it happen:

• Ask for a raise at work. It can be nerve-wrecking but you may not get a raise unless you ask.
• Get a second job. Can you work nights or weekends for a while to supplement your income?
• Sell some things. Those old golf clubs, second car or treadmill could be worth quite a bit. Try eBay, Craigslist or an old fashioned garage sale.
• Get creative. If you have a special craft talent, you might be able to earn some extra money by selling your wares on a site like Etsy.com.
• Find a new job. You're likely to get a raise when you switch careers.
• Play the lottery. Well, maybe not the lottery per se, but it can pay off to enter sweepstakes in person and online. If you win, sell the goods and put the cash toward debt payments.

2. Spend Less - The less-fun option but also the most realistic. You'll have more money to put toward your debts if you cut back on your expenses each month. Here are a few pointers:

• Hide your credit cards. Don't close the accounts but absolutely don't use them while you're trying to get them paid off. Adding new purchases to your credit cards will make getting out of debt that much harder.
• Carpool or take public transportation to work. Gas is expensive these days.
• Cancel major monthly bills. Are you paying over $100 for cable TV each month?  How much for car payments? Insurance on that extra car? You could save a bundle by cutting out just one of these major bills.
• Brown bag it. It's a cliché, but bringing your own breakfast and lunch to work can save you as much as $250 a month.
• Go on a spending freeze. Vow to not buy anything beyond groceries and the absolute necessities for the next 30-days. You'll be surprised how easy it may be to continue with your frugal ways once the month is up.

Are you planning to get out of debt in 2008? What's your method? Share your feedback in the comments section below.

Emily Davidson – Credit.com credit expert and former TransUnion insider. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Still a Bad Time to Buy Authorized Tradeline Services

I've received a couple calls from consumers this week asking about the "delay" in rolling out the new FICO credit score model. The updated FICO formula is designed to ignore authorized user accounts in score calculations and was officially launched in September. Read our whole alert on the FICO change online. Here's the scoop:

The roll-out of the new score was planned to take a few months. The credit bureau, Experian, was the first to implement the score in September. Individual banks, lenders and other credit agencies are converting between now and 2008.

There has recently been a hitch in this plan, though. The aforementioned delay was reported by American Banker on Friday (paid subscription required). It all began last year when Fair Isaac (maker of FICO scores) sued the three credit bureaus for unfair and anticompetitive practices relating to the release of the VantageScore.  According to the American Banker article, Equifax will not implement the new FICO score while the case is pending:

"Until that lawsuit is resolved, our relationship with Fair Isaac is strained," Paul J. Springman, Equifax's chief marketing officer, said last week. "Whenever we take care of the lawsuit, then we decide what to do with FICO 08."

All this sounds more like something from a soap opera than the business pages. Especially, when you consider that Equifax and FICO used to have a very strong partnership.

In the meantime, all those formerly shut-down authorized tradeline (aka Piggybacking) companies are back at it. Fueled by the news of possible delays, they've been marketing their authorized user accounts with a renewed fervor.  For a $500 to $2,500 price tag, a consumer can pay to be added as an authorized user on a stranger's credit card account.

Despite FICO roll-out delays, authorized user accounts are not likely to be counted in credit scores. Most lenders and credit score users have figured out the scam and adjusted their  models accordingly.  Buying an authorized tradeline is a gamble at best and most-likely a huge waste of money. There is no "grandfathering" of these authorized accounts. Even if they do manage to get you a score boost now, the increase will disappear once everyone converts to the new scoring formula.

Instead, someone struggling to rebuild their credit should apply that $500+ investment toward opening a secured credit card. With secured credit cards, you deposit a balance into a savings account to "secure" your credit limit on the card. A $500 savings account gets you a $500 credit limit. The card will report to the bureaus each month under your name. If you use the account responsibly, the creditor will convert the card to an unsecured account and you'll receive your deposit back with interest. Plus, there is no danger of this account being ignored in credit score calculations.

If you're considering working with an authorized tradeline company, I hope this information helps you make a smart decision. If you have any questions, feel free to email us at tidbits@credit.com.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

Waking Up to Credit Woes

There are two interesting articles to read at the start of this week. First, the New York Times dissected the correlation between subprime mortgage loans, geographic location and race (free login may be required). According to the article, subprime loans are most highly concentrated in neighborhoods that are largely black, hispanic or both.  This is true across middle-income and even high-income areas.

Since subprime loans are based on credit scores and credit scores don't take into account rate, income, neighborhood or net worth, it is interested thing to see this organic gap emerge. The article cites the lack of traditional banks and the prominence of largely s bprime banks in these areas as the likely main cause.

The moral to this story is definitely "shop around for your mortgage." It's possible that a large percentage of people who received subprime loans could have qualified for a traditional mortgage if they went to a different bank or lender. An interactive graphic of the percentage of subprime mortgages by county accompanies the article. Did you know there is a county in Texas where 82% of the mortgages are subprime?

The second must-read article of the day comes from MarketWatch (login may be required). According to a recent Fed report, we're currently going through an unprecedented tightening in lender standards. Mortgages are harder to get now than they have been in the last 17 years. Banks are cracking down on prime borrowers and subprime borrowers. 60% of banks have raised their lending standards for non-traditional (alt-A) mortgages and many have stopped issuing subprime loans at all.

I hope you'll read both articles this morning. Overall, they paint a pretty worrisome picture of the future housing market. If you want, share your opinions and feedback in the comments section below.

Emily Davidson – Credit.com's Communication Director and former TransUnion credit expert. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.

The Case of Falling Credit Limits

A new trend in the credit card industry has consumer credit limits on the decline. Some credit card issuers have started lowering the spending limits on existing customer accounts as a way of tightening their belts during the current credit crunch. Our credit card and personal finance expert, Gerri Detweiler, was recently interviewed by ABC News in Los Angeles about the changes:

"If you don't know your credit line has been dropped, you could go over the limit. And, with most card issuers, that means you'll pay a hefty over the limit fee," Gerri Detweiler, a credit card expert, said.

You also have to watch your credit rating.

"A third of your credit score takes into account how close you are to your credit limits on your credit cards. So, a lower credit limit may make you appear maxed