Don’t Risk Your Credit Score In Retirement – WBRC FOX6 News – Birmingham, AL

Cancelling infrequently used credit cards may seem like a good strategy, but your credit score may be adversely affected. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, explains: “When you have a long-standing trade line, which is what a credit card is considered on your credit report, and you cancel that card for whatever reason, your score will actually go down as a result because one of the main impacts on your credit score is the length of credit history.” A shorter credit history translates to higher risk in the eyes of lenders.

Sean McQuay, Credit and Banking Expert at NerdWallet, agrees but includes another reason to keep older cards, noting that closing a card account results in “decreasing your overall credit line, which basically signals that a bank trusts you less.”

In addition to decreasing your overall credit line, closing an infrequently used account raises your credit utilization your total credit in use compared to your cumulative credit line. High credit utilization suggests a greater chance of falling behind on payments and/or defaulting on debts.

To avoid these pitfalls, make periodic small purchases on all your open credit cards to keep them active and pay the balances in full at the end of each billing period. By keeping credit spending low, you can still address debts while getting the full benefits of your credit account.

It’s okay to concentrate most of your credit spending in one account to maximize rewards. Just use alternate accounts often enough to keep them from being closed for lack of activity.

Source: Don’t Risk Your Credit Score In Retirement – WBRC FOX6 News – Birmingham, AL

Capital One, Discover tighten credit for some consumers

haveyouheard-292x300Capital One’s CEO remarked that these actions are business intuition. Is this a sign of the genesis of an economic downturn? Perhaps the financial canary is already in the proverbial coal mine, so to speak.

While a lender’s action might be understandable from a business standpoint, it’s a big problem for affected cardholders. Not only do they have access to less credit, but that reduced access — especially if an account is closed — reduces the consumer’s credit score.

If you have a Discover or Capital One card you haven’t used in a year or more, it would be wise to immediately make a small purchase and pay off the balance. That way you could argue the account is not inactive.

Source: Capital One, Discover tighten credit for some consumers

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | November 5, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

UltraFICO®An Initial Discussion

While this new alternative “credit” algorithm is not set to roll out until sometime in 2019, included below are my initial thoughts based on the BIAA press release and the below referenced articles from the Wall Street Journal, Consumer Affairs and USA Today.

Experian, FICO and Finicity Launch New Ultra FICO Credit Score

With Ultra FICO® Score, a consumer grants permission to contribute information from banking statements, including the length of time accounts have been open, frequency of activity, and evidence of saving, which can be electronically read by Finicity and combined with consumer credit information from Experian to provide an enhanced view of positive financial behavior.

Experian, FICO and Finicity estimate this new score has the potential to improve credit access for the majority of Americans and is particularly relevant for those who fall in the grey area in terms of credit scores (scores in the upper 500s to lower 600s) or fall just below a lender’s score cut-off. Consumers who are relatively new to credit with limited history or those with previous financial distress that are getting back on their feet stand to benefit the most.

This new system will roll out next year. Initially, the most likely use will be for beginner credit cards. The UltraFICO® is an add-on feature some lenders will offer to enhance a prospective borrowers credit profile and score.

The prospect must provide access for a one-time snapshot of their banking/bill paying account. The data analyzed will be regular payments of rent and utilities. The expected average balance in the account should be $400 or more. There should be no overdrafts or NSF checks in recent months. It’s expected there will be more income than outgo to the account. Discussed is that the checking/bill paying account must be established for some undefined time.

The above referenced WSJ article captures the essence of what the new credit score enhancing tool is expected to be. It will not, in the immediate future, be used by mortgage lenders. I expect that it may be used by some auto dealers.

UltraFICO® score takes into account how much money you have in the bank

According to the Journal report, the new UltraFICO® would be a tool for consumers whose credit scores are not that great. If they have a few hundred dollars in the bank and have had the bank account for a number of [undisclosed] years without overdrawing they might see their credit standing rise.

But in practice, the new formula is likely to be of greater benefit to consumers who already have high credit scores because they are the consumers most likely to have accumulated some cash in the bank. Consumers with low credit scores are often in that situation because they lack the extra cash to meet an unexpected expense.

Based on practicality and experience, I believe this Consumer Affairs writer is off-base in his analysis of who this will help the most. Someone with >760 FICO® Scores has no need for a bump of a few points whereas someone with a 620 score most definitely has the need. We’ll soon figure out just how many months one must have $400 or more in their account to gain the bump.

New FICO system could lift credit scores by including checking and savings history

Finally, from the above referenced article from USA Today: “...it remains to be seen how fast lenders will adopt this supplemental scoring system. For instance, FICO’s latest credit score – FICO 9 – was released four years ago, but the previous version of the score – FICO 8 – remains the most widely one used.

Consider the fact that neither FICO 8 or 9 are used in the mortgage lending industry. UltraFICO® may be used by certain credit card issuers as well as some vehicle lenders. We’ll know more next year.

Image attribution

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | October 29, 2018 | October 30, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

Compliance Chrestomathy: CFPB goes Global

“Welcome to “GFIN” – yet another acronym to be added to the great pantheon of acronyms!

It stands for Global Financial Innovation Network. The name contains some modernistic sounding buzz words, such as “global,” innovation,” and “network.” It consists of eleven financial regulators,[i] hence the overly abused word “financial.” I am not sure how to contract GFIN into a monosyllabic word, let alone a polysyllabically pronounceable word, like “Go-Fin” or “Gaf-In” or “Goof-In” or “Gay-Fin” or “Gee-Fin” or “Gy-Fin” – so let’s just say “G,” “F,” “I,” “N,” and hope for the best!

The CFPB has said the new network will seek to provide a more efficient way for innovative firms to interact with regulators by helping them navigate between countries…”

Source: Compliance Chrestomathy: CFPB goes Global

Free Credit Freeze & Free Credit Thaw – Children, Too

I have frozen my credit. Have you?

Updated credit report law allows consumers to freeze and thaw their credit reports. It is now free for consumers to freeze their credit and they can lift that freeze for free, too.

Beginning today, September 21, 2018, the Federal Trade Commission (FTC) has enabled a new credit file protection layer — one the consumer controls.

Credit fraud experts say the new option is better than an alert, plus it covers the entire family.

It makes it harder for identity thieves to open new credit accounts under a consumer’s name.

This new act offers a bonus for parents concerned about their under-age 16 children who might be easily lured into getting a credit card of their own. Those children are also eligible to have their credit files frozen.

If a consumer asks for a freeze online or by phone, the credit reporting agency (CRA) must put the freeze in place no later than the next business day. You can place the freeze on-line immediately.

When the consumer needs to lift the freeze – for example, to finance a new phone, vehicle or, get a mortgage – the freeze must be lifted within an hour.

You must notify each of the three CRAs separately to freeze your credit on each of the three CRAs. Below are links to each of the three CRAs. Remember, you must notify each CRA to implement a freeze.

Image credit: AARP Blog

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | September 21, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

What Are the Costs of Aging in Place?

According to an AARP study, 90 percent of people age 65 and over would prefer to stay in their own homes as they get older — and not go to a nursing home or assisted living facility.

But if you or your parents are buying, building or renovating a home to accommodate the needs of a loved one, what kind of costs can you expect to incur?

Source: What Are the Costs of Aging in Place?

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | August 17, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct for your situation. This information is not legal advice and is for guidance only. You may reproduce this information in whole and not in part, providing you give full attribution to James Spray.

Free Credit/Security Freezes – All 3 Bureaus – Free Unfreezing

Thanks to a new federal law – the Economic Growth, Regulatory Relief, and Consumer Protection Act – consumers will be able to contact each of the three major credit reporting agencies and direct them to place a free freeze on the consumer’s credit file. By restricting access, a credit freeze makes it harder for identity thieves to open new accounts in consumers’ names.

Not only will it be free for consumers to freeze their credit, but they can lift that freeze for free, too. And the law requires the credit reporting agencies to do it in a hurry. If a consumer asks for a freeze online or by phone, the credit reporting agency has to put the freeze in place no later than the next business day. If the consumer wants to lift the freeze…that has to happen within an hour.

This new law is effective September 21, 2018. Click here for more.

The New York Times published good article on the subject. “Freezing Credit Will Now Be Free. Here’s Why You Should Go for It.https://nyti.ms/2Mw01rU

Financially Speaking™ James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | August 16, 2018 | Updated September 16, 2018

Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

The State of Lending: Debt Settlement | Center for Responsible Lending

Debt settlement companies offer the promise of settling a consumer’s debt for a fraction of what they owe. The idea is simple: debt settlement companies offer to negotiate down the outstanding debt (usually from credit cards) owed to a more manageable amount so that a consumer can become debt free. Unfortunately debt settlement carries significant risks that may result in consumers becoming even worse off.

Debt settlement is inherently a risky venture: in order to enroll into debt settlement programs, consumers are required to default on their debt which often results in fees, increased interest rates, and sometimes even lawsuits from creditors. Even after assuming all this risk, consumers are offered no guarantees; in fact, some creditors refuse to negotiate with debt settlement companies at all. Even if a settlement is reached, a consumer unable to keep up with the new settlement arrangement risks falling back into default – and now without the fees paid to the debt settlement company for negotiating the agreement. CRL finds that consumers must settle at least two-thirds of the debt they enroll in a debt settlement program to benefit, a result that many will not achieve.

This chapter examines the debt settlement industry, the risks to consumers, and recommends actions at both the federal and state levels to reduce the potential harm to consumers.

The chapter finds:

  • Debt settlement is a risky strategy for debt reduction – and often leaves consumers more financially vulnerable.

  • Consumers must settle two-thirds of their debt to be better off than they were before – and many consumers are unlikely to reach that level of success.

  • Strong state and federal laws could curb risks associated with debt settlement.

Source: The State of Lending: Debt Settlement | Center for Responsible Lending