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2019 Idaho Real Estate Blog

The Consumer Credit Scoring Models -- Problems You Should Know Main Boise Home Loans
When it comes to the many different (yes, there is more than one) consumer credit scoring models, there are many defects in the system. Here are some you NEED to know about.

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Dear BuildingCredibility.com reader:

 

Meridian, ID -- BREAKING NEWS – CONSUMER CREDIT SCORING MODELS HAVE MAJOR FLAWS

Wow…as if we didn’t know that already. Anyone who has been declined credit on a loan or credit application may understand some of what I am going to tell you next. However, the vast majority of Americans do not understand what is wrong with the credit scoring models. The problems are many and the list is long…I am going to break down for you the most important problems (in my humble opinion) you need to know about.
 

SCORING MODELS ARE NOT PUBLISHED

As part of my mortgage service, I always provide a complimentary credit report analysis. In this analysis, I show people the areas and credit tradelines currently in their credit report that are hurting their score, and educate them on what they can do to improve their scores by teaching them how their score is calculated. However, even a professional like me has NO ACCESS to the actual, precise formula. In the 1950’s, when Bill Fair and Earl Isaac started working to create the first credit scoring model (Fair Isaac & Company – FICO), they did so with business profit in mind. Publicizing this “secret formula” would not allow them to be profitable.
 

UNIVERSAL DEFAULT

Depending on your specific situation, a drop in your credit scores can trigger a personal financial tsunami called Universal Default. Essentially, this means that ALL of the interest rates you pay on credit card and other revolving accounts can increase to an APR of more than 30%. If you are someone who has 4-5 credit cards, and you are revolving balances (not paying the outstanding balance in full each month), Universal Default could be devastating.


PAYING A COLLECTION ACCOUNT CAN HURT YOUR SCORES

Who would think that paying off a collection would potentially lower your scores by at least 100 points!? It’s true…depending on how old the collection you are paying is, you can actually lower your credit score by simply paying off existing collection debt.


TOO MANY CREDIT SCORES

Mortgage applicants of mine often wonder why the credit score that I use to qualify them for the mortgage is lower than “their score” that they just pulled. You see, depending on who pulls your credit (cell phone provider, auto dealership, insurance company, mortgage lender, or you personally), you will get a different credit score each time because of the model involved. Think of it like when you were in school: One teacher told you that to earn an A, you must get 90%; but another teacher says that to earn an A, you must get 93%. Same grade, but different grading criteria/scoring models.

 

My next entry will talk about the laws currently in place to “protect” you, and why they do not work.

 

If you are interested in talking more about this post or a specific credit scoring issue you have or know about, feel free to call or email me at (208) 880-0316 and eric@ericsloans.com. You can also visit my website at http://www.ericsloans.com.
 
Best Regards,

Eric Leigh, Mortgage Consultant
2965 E. Tarpon Drive, Ste. 150
Meridian, ID 83642
(208) 880-0316
http://www.ericsloans.com
eric@ericsloans.com

 

 
Posted by Eric Leigh at 1/23/2009 11:40:00 AM
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