Q&A: FICO executive on credit scoring changes

 

NEW YORK (AP) – July 13, 2015 – Your credit score is an important bit of information that determines a lot about your financial life. But if you wanted to be in the loop, it came with a price tag.

That never seemed fair, but now consumers can increasingly see their FICO score for free – the three-digit number that determines if you'll be approved for a credit card or loan.

Fair Isaac Corp., the company that developed the FICO score, has been working with credit card issuers and lenders to allow them to show customers their FICO score online or on monthly statements. Seeing the score frequently pushes consumers to improve their finances, says Jim Wehmann, a vice president of FICO's scores business.

People with higher FICO scores, which generally range from 300 to 850, are offered lower interest rates on mortgages or have an easier time getting approved for credit cards or loans.

FICO scores are calculated using information from your credit report, a detailed list of your past and current debts. But roughly 45 million Americans have no credit history or credit score, according to the Consumer Financial Protection Bureau. FICO is developing a scoring system for these so-called "credit invisibles."

Wehmann offered insight on what you should know about your credit score. Excerpts have been edited for clarity and length.

Q: What's the fastest way to improve your FICO score?
A: Always make your payments on time. Roughly 35 percent of your score is based on payments. That's going to be the most important factor.

Q: What hurts your score the most?
A: Not making your payments on time. Delinquencies and other negative events – collection items, bankruptcy, foreclosures – will have a significant negative impact on your score.

Q: What's the biggest mistake people make when it comes to their FICO score?
A: Not fully understanding that the behavior that they take today could impact their score and their ability to get credit later.

Q: It has become easier to get a free FICO score. Big credit card issuers, such as Discover, Chase, offer the score to their customers for free. How did that happen?
A: We launched something called FICO Score Open Access, which allows lenders to freely share with consumers the score that the lender is using. We launched the program two years ago and it's grown significantly. About 65 million people right now are eligible to get their FICO score for free through their lender, and we expect that number to grow over the coming months. There's a lot of attention given to the largest financial institutions, but we're working with credit unions, community banks and smaller organizations.

Q: Is it true that each person has several different FICO scores?
A: Yes. We have a few different versions. Some lenders use older versions of the scoring methodology, and some are for specific types of lenders.

Q: Who are the credit invisibles?
A: They're called invisibles for a couple of reasons. One is they don't have credit scores. Some don't have credit files, so they have no credit history; no credit card or mortgage or auto loan or personal loan. No data has been captured by the credit bureaus. They're young people who are just starting out, who don't have any credit, or they may be immigrants to the country where they don't have a U.S.-based credit history.

Q: What information does FICO need to create a score?
A: From a FICO perspective, they are unscorable because we don't yet have six months of history on them, or we haven't had an update in six months.

Q: If there's no credit history, what information will you use to build their score?
A: Wireless or landline or cable bills.

Q: When will that FICO score be used?
A: We're in a pilot phase. We've built the score and we are right now working with lenders for them to validate the score based on their actual applications.

Q: When will it be ready?
A: We have 12 lenders in the initial pilot, so we're going to wait until they do their validations before we make it widely available to all lenders, probably by the end of the year or first quarter of next year.

Copyright © 2015 The Associated Press, Joseph Pisani. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Reposted Courtesy of Associated Press. Original Post Appeared Here: http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=3&id=325542

What Happens When You Stop Paying Your Mortgage?

What happens if you don’t pay the mortgage?

FORT LAUDERDALE, Fla. – Oct. 29, 2009 – We all talk about what if's. One big “what if” that many homeowners have today has to do with mortgages.

About one-third of South Florida mortgages are underwater, meaning the homeowners owe more than the home is worth at today’s depressed prices, according to First American CoreLogic. Some homeowners are certainly wondering why they’re sending in the payment on, say, a $300,000 mortgage, when the house today would sell for only $210,000.

Your options: Keep paying or try to change your loan’s terms.

But some people wonder, what if I just stop paying the mortgage? It may be a tempting idea, but it quickly leads to trouble.

Here’s what could happen if you don’t pay the mortgage.

Report to the credit bureau

If your payment does not arrive, your lender or servicer will report this late payment to the credit bureau by the first day of the next month. This can happen in as little as two weeks from due date and put a negative mark on your credit report. Your credit score drops.

The late payment report whacks your credit rating. Your credit score starts to drop, by up to 200 points, if this is your only late or missed payment.

Cards are closed, rates rise

In the next 30 days, you can expect your other creditors to take note of the late payment and to take action. They can raise your interest rates, shut off your credit card entirely, or lower your credit limit. You also could face other changes in your financial life, because auto insurance, student loans and other forms of credit are pegged to your credit score.

Tightening of credit lowers your score

Credit scores feed on themselves. If your credit card limits are lowered and you are carrying a balance, you are then using more of your available credit, something known as your utilization rate. When that goes up, it lowers your score some more.

The negative mark stays on your credit report for seven years. But the impact on your credit score lessens over time. The biggest impact is for the first two years.

Lender response

The phone will start ringing. Your lender will try to contact you, try to persuade you to go into a loan modification of some kind.

But after 90 days, you cannot just start making payments again. The lender may actually send your payment back, if you send it this late and have not been in contact.

What happens next

After four months of not paying your mortgage, you will likely be served with a foreclosure notice.

If you don’t respond within 20 days, then the lender, in the following 60 days, will ask a court to issue a judgment against you.

A county sale will be arranged 50 to 120 days after the judgment. Next, 120 days after the sale, the sheriff will be at the door. Ten days after that, you’ll be thrown out of your home.

(Tip: This schedule is a general one. Courts are facing a backlog of foreclosure cases and could take longer to go through these steps. If you hire a lawyer and fight the foreclosure, you may be able to delay the sale for many months or avoid it altogether.)

Sources used for this column included: John Ulzheimer, president of consumer education for Credit.com; Barry Paperno, consumer operations manager at FICO; Attorney Roy Oppenheim of Weston, whose practice centers on foreclosure defense; and Jessica Cecere, president of the Consumer Credit Counseling Service of Palm Beach.
http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=225965
© 2009 Sun Sentinel Distributed by McClatchy-Tribune News Service, Harriet Johnson Brackey.