Tag Archives: Credit score

Don’t Believe What You Read In The Papers.

There was a big front page article in the New York Times today trumpeting the banks’ return to extending credit, now that they have written down all of their junked up sub-prime debt and have recovered from the losses on loans made to troubled borrowers. The article points out that some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

I think the truth about this report is that the banks’ media relations folks got together with the NYT‘s editorial folks and everyone decided it would be nice to have a little media party and give regular folks a glimmer of hope about the credit markets and the banks a glimmer of “really not such bad guys after all” patina on their hopeless public images. 

They, of course rolled out their stat machines and pointed out that credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said. Of course, Experian is in on the deal as well, as positive lending news benefits them immensely. It is similar to the housing report by our HUD secretary today (covered in the Yes, This Really Happened. post later) which makes everyone in charge including of course, the current administration look better.

The banks, for their part, are looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business — the high and the low ends — industry consultants say. Subprime borrowers typically pay high interest rates, up to 29 percent, and often rack up fees for late payments.

Consumer advocates and lawyers worry that the financial institutions are again preying on the most vulnerable and least financially sophisticated borrowers, who are often willing to take out credit at any cost. “These people are addicted to credit, and banks are pushing it,” said Charles Juntikka, a bankruptcy lawyer in Manhattan. Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis. No. You think? 

“It’s clear that we are returning to business as usual,” said Mark T. Williams, a former Federal Reserve bank examiner. Ah, lighten up Mark, this is just banking.

The lenders argue that they have learned their lesson and are distinguishing between chronic deadbeats and what some in the industry call “fallen angels,” those who had good payment histories before falling behind as the economy foundered. A spokesman for Chase, Steve O’Halloran, said the bank “seeks to be a careful, responsible lender,” adding that it “is constantly evaluating the risks and costs of funding loans.”

Regulators with the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, said that as long as lenders adhered to strict underwriting standards and monitored risk, there was nothing inherently dangerous about extending credit to a wider swath of people. Snicker, snicker. 

In fact, an increase in lending is a sign that the economy is improving, economists say. While unemployment remains high, consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis. “This is a natural loosening of credit standards because the banks feel they can expand again,” said Michael Binz, a managing director at Standard & Poor’s. And lenders miss many potential customers if they focus just on people with perfect credit. WOW! Really?

“You can’t simply ignore this segment anymore,” said Deron Weston, a principal in Deloitte’s banking practice.

The definition of subprime borrowers varies, but is generally considered those with credit scores of 660 and below, which is interestingly a “FAIR” credit score according to the Experian web site. So, again the message is mixed, and I suspect you will find that if you applied for a credit card with a credit score of 695, you will be rejected. 

The banks, regardless of what they are “saying”, will treat you in much the same way as the two leading peer-to-peer lenders do; that is, if you don’t have a FICO credit score above 700, you will be rejected. So, beware of what you read in the press and consider the source and the underlining motivations of these lending behemoths. They didn’t get too big to fail by being nice to your loan applications. 

Not unlike Capital One, the one lender that has been courting borrowers with damaged credit, even those who have just emerged from bankruptcy, with pitches like, “We want to win you back as a customer.”, these banks all have their own self-interest at heart. Notice Capital One said “even those who have just emerged from bankruptcy” but they didn’t say “even those who have just emerged from foreclosure”. They love bankrupted borrowers, because they can’t erase their future debts in bankruptcy again for many years. Not so much foreclosed borrowers. If they believe you won’t repay your debt, you won’t get a loan.

Pam Girardo, a spokeswoman for Capital One, said, “Our strategy is to provide reasonable access to credit with appropriate guardrails in place to ensure consumers stay on track as they rebuild their credit.”

Pam, that is absolute nonsense. Have you no shame, and what’s in your wallet?

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For 2012, Consumers’ Total Credit Scores Should Be at Least 2012

According to Carrie Coghill, Director of Consumer Education for FreeScore.com, a consumer’s 2012 New Year‘s goal should be to have his or her credit scores add up to at least 2,012.

Coghill stated, “You have three credit scores from the three major bureaus: TransUnion, Experian, and Equifax. If those scores total 2,012, you’ll have an average score of about 670, which is a solid ‘B’ and acceptable for getting loans.”

According to FreeScore.com, “Directional letter grades associated with credit scores are as follows:”

Grade* Score Range

A   741 – 850
B   641 – 740
C   541 – 640
D   451 – 540
F   300 – 450

*These are guideline-only grade ranges for scores. These grade ranges are simply directional and cannot be used as a “rule.” They are designed to help consumers better understand credit scores by translating them into rough “grade ranges.”

iSellerFINANCE will accept those C’s, D’s and F’s if they are the result of a default on their mortgage  and/or a foreclosure or sudden increase in medical bills or debt. Buying a house that fell in value and ended up being worth less than the first mortgage is punishment enough. Nobody wanted that outcome nor did they plan for it. And, given the sorry state of the healthcare industry and lack of affordability of proper health insurance shouldn’t be further punishment either. iSellerFINANCE also accepts borrowers who have recently filed bankruptcies as the result of overwhelming mortgage debt as some States pursue individuals who try and walk away from their mortgages after default.

For consumers, Coghill recommends the following dos and don’ts:

1. DO pay all bills on time, every time.

2. DO keep all financial documents. That includes bills, bank and credit card statements, receipts, canceled checks, and so on for the last several years. This documentation will help a person dispute errors on a credit report, including unauthorized charges. If a consumer ever has to deal with identity theft, this information will help as well.

3. DO get credit reports. Consumers need to review their credit report from each of the major credit bureaus, TransUnion, Experian, and Equifax.

4. DO clean up errors on a credit report. Once a consumer has their credit reports, disputing negative items is the fastest, easiest way to remove them and thereby make certain that their credit scores reflect an accurate financial history.

5. DO reduce the level of debt. Focus on paying off credit cards, both because they have high interest rates and because they affect a credit score a lot.

6. DO minimize the number of inquiries on a credit report. Single inquiries (as from new credit applications you make) won’t have a big impact, but a number of inquiries in a short time period is generally not good.

7. DO keep open old but unused credit card accounts, especially older ones. The longer the average account age and credit history, the better, so keeping old but unused accounts open can help because it shows a consumer to have a long credit history. Unused credit also improves a consumer’s ratio of used to available credit.

8. DON’T apply for or take on new revolving credit unless it is really necessary. If a consumer is already maxing out his or her available credit, new applications and additional debt may hurt a person’s finances. For example, FreeScore.com consumers ran “what-if” credit simulations and found that increasing credit on a credit card can drop a credit score by more than 50 points.

And, finally you should keep in mind that debt has a statute of limitations and you should be aware of what that statute  is in your State before agreeing to pay anything to scavenger collectors on older debt. The statute varies for differing types of debt, but depending upon the State, the debt typically expires between 3 and 6 years after the last payment has been made. You can find that out by obtaining your credit report from one of the free credit report services. Good luck.

 


A Short Video Describing a Social Lending Model and How We Are Different.

The following video is about 4 minutes long and it describes one of our competitors’ lending platform, a company called Weemba. We like showcasing our competitors because it is often the easiest way to describe our differences. You will see that Weemba puts institutional and commercial lenders together with small business (and while they don’t mention it, individual borrowers as well). Then, they charge a flat fee for the introduction, acting essentially as a lead-generator for banks.

And, of course like Lending Club and Prosper, Weemba’s lenders will be as rigid and uncompromising about qualifying their potential borrowers as any bank would be. Lending Club and Prosper proudly advertise that they turn away 85-90% of their borrower applicants.

iSellerFINANCE is a platform where borrowers/buyers and lenders/sellers can meet-up and negotiate loans and purchases over time. We only charge a small membership fee. Our lenders are individuals like those at Lending Club and Prosper, but we welcome the 85-90% of borrower applicants that they turn away. Why? They use conventional credit scoring models while we use a proprietary, advanced credit scoring model which for example, forgives those borrowers who have low credit scores solely because they defaulted on their mortgage.

We are looking to turn the tables on conventional banking, put the “social” back in social-lending and return some financial power to hard-working everyday citizens. And, we are launching soon under both http://www.OccupyFinance.com and http://www.iSellerFINANCE.com, so stay tuned.

Here’s the video:

http://www.youtube.com/watch?v=5vlQffM5v-0&feature=player_embedded

One additional comment I want to make about this video is that the notion of “giving up control to venture capitalists and angel investors” just isn’t true.


I Don’t Want to be a Bank Anymore!

OK. You sold your car. That was great. But, now you are in month four and you need some cash. What to do? Post your Note on iSellerFINANCE’s Note Re-sale Auction page. It’s easy. You simply supply the Note principal amount, the original term (in the case of your auto loan, it was 24 months), the remaining term (now, it’s 21 months) and the interest rate (your auto loan was at 10%). By clicking on your note, potential buyers will be able to see the borrower’s (now, the car owner) blended FICO credit score and all of the demographic information he supplied and will be able to evaluate his credit-worthiness and assess risk. Once a potential buyer determines that he wants to invest by buying your note, he makes an offer. The original note was for $5,000. You have received $692.16 from the buyer so far (3 months x $230.72) and the note is now worth $4,307.84. A potential investor offers $3,000 for the note. You counter at $3,500. He agrees. You both sign a purchase contract and you transfer title to the investor. Along with title, the new investor also receives the remaining payment schedule and automatically becomes the payment repository. You get a cash infusion of $3,500. The new investor gets a $4,307.84 note with interest at 10% for $3,500. Another win-win at iSellerFINANCE!


A New Social Finance Site is Coming Soon!

This site will enable people who cannot qualify for conventional financing to borrow money and/or purchase goods and services financed by sellers over time. The services might be those of a contractor, electrician, plumber, etc. The goods might be a house, a car, a bike, a boat, a living room set, etc. Once a seller has entered into a purchase contract with a buyer, s/he may turn around and post the resulting note for sale on the same site. It is a great way for people to buy and sell, and to enable people to re-build credit as the site manages the payment process and tracks payment performance over time generating a credit score. We will also enable micro-funding and Crowdfunding for communities, non-profits, entrepreneurs  and small businesses. The Amazon of the social finance space. Our launch date is June of 2012. More to come later. Stay tuned.