Credit Rating

Chapter 20 explores the kinds of damages typically suffered by victims of inaccurate credit reports or identity theft, and provides a preliminary methodology for identifying and measuring those damages. debt consolidation and credit

Chapter 21 recounts the exciting legislative debate of 2003, which resulted in major amendments to increase the FCRA s consumer protections. Despite the improvements, no one in Congress or elsewhere felt that the problems of credit report inaccuracy or identity theft would go away anytime soon. Some advocates predicted the problems would get worse before they got better. check credit rating

Chapter 22, the only entirely new chapter in this Second Edition, explores controversial policies of credit card companies that fail to report their card holders credit limits to credit bureaus, a practice that can lower credit scores. It also examines credit card companies that practice universal default, meaning they will raise card holders interest rates if their credit scores drop too much - even if they ve never had a late payment with that particular company. improve credit rating

Privacy

Credit scoring and credit reporting are inextricably linked to the fundamental privacy rights of consumers. As the U.S. Supreme Court has recognized, To begin with, both the common law and the literal understandings of privacy encompass the individual s control of information concerning his or her person. ¹¹ In the Information Age, privacy is defined by, and measured according to, the principles of Fair Information Practices (FIPs). As we will see in Chapter 10, these principles are at the core of information privacy laws, both in the United States and abroad, including the FCRA. They seek to ensure that individuals maintain a reasonable level of control over their personal information by ensuring accuracy, fairness, collection and use limitation, purpose specification, security, and enforcement. These principles form the basis for an international consensus¹² as to how personal data should be protected by law and by organizational practice. Enacted in 1970, the FCRA was the United States first information privacy statute. credit online rating report

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U.S. Dept. Of Justice v. Reporters Committee, 489 U.S. 749 (1989) ¹² Principles of Fair Information Practices, Organization of Economic Cooperation and Development (OECD), 1980 The credit reporting system contains detailed and sensitive financial information concerning an estimated 205 million consumers in the United States. The system is de-signed to facilitate the free flow of information for the purposes of credit, employment, and insurance. It enables thousands upon thousands of organizations, large and small, to make important judgments about consumers based upon their personal information. There are many benefits for consumers and for the economy. credit score rating scale

All too often, however, this takes place without the knowledge or consent of consumers. Problems arise for individuals privacy, and for our economy and society, when judgments are made based upon inaccurate, incomplete, or irrelevant information. Privacy is damaged when personal information is used or disclosed for impermissible purposes. Moreover, privacy suffers when others gain unauthorized access to our credit reports. bad card credit credit people

The purpose of this book is to increase consumers understanding of the system, and thereby increase their ability to exercise control over their personal information. The more the system is subjected to public scrutiny, and the more consumers gain control over their data, the better the system works. The goal is privacy, which is sometimes explained as informational self-determination. ¹³ This goal is more readily reached by adhering to Brandeis instruction that, Sunshine is the best disinfectant. free credit rating report

This book answers many questions. But it will raise many more. Here are a few to keep in mind as you continue reading: ¹³ As noted by Dr. Spiros Simitis, Professor of Law, Johann Wolfgang Goethe-Universitat, Frankfurt, Germany, this right is recognized by the German Constitution and was affirmed by the German Supreme Court in a national case involving the Census. Also see the writings of Law Professors Paul M. Schwartz and Joel R. Reidenberg, including Data Privacy Law (Michie, 1996) credit rating scale

• Should our society and our system of law continue to treat our personal data like a commodity bad credit rating

• Should we have a property interest in our data credit rating agency

• In the current information age, is our personal information better viewed as a resource, both public and private credit rating canada

These questions ultimately go to the fundamental importance of credit reports and personal information in 21st Century America. bad credit mortgage rating

But first things first. Let s start with the basics. Continue to Next Chapter 2005 Evan Hendricks and Privacy Times, Inc. All rights reserved. Enroll in Credit Repair About Veracity Credit Consultants Contact Veracity Full Refund Policy Veracity Site Map Privacy Statement Terms of Use Credit Repair Specialists are Ready to Help! Call Veracity and Begin Improving Your Credit Score Today! good credit rating

Veracity - How is a FICO Credit Score Determined The Color of Credit Scores Special Challenges Opting Out Impermissable Access Damage Damages The 2003 FACTA Battle Missing Credit Limits Conclusion Credit Scores and Credit Reports, by Evan Hendricks

Chapter 1 Basics of The Credit Score If winning isn t everything, why do they keep score credit score rating chart

- Vince Lombardi All right, everyone, line up alphabetically, according to your height. - Casey Stengel A Brief History The Fair Isaac Corporation first developed models for calculating credit scores in the late 1950s. Credit scores started gaining widespread use in the late 1980s and came to consumers attention in the late 1990s when mortgage lenders began considering credit scores in their loan underwriting. They helped usher in today s era of automated underwriting and credit decisioning, in which large organizations can decide, via computer, whether or not to grant you credit or insurance-no human involvement necessary. credit mortgage rating poor

Despite their importance and growing popularity among businesses, to consumers, credit scores were shroud-ed in mystery. It was not clear how they were calculated or who was using them. In fact, the Federal Trade Commission (FTC) put out an opinion stating that federal law did not require the credit bureaus to reveal credit scores to consumers who requested their credit reports. This was in part, because the 1996 revisions to the Fair Credit Reporting Act (FCRA) specified disclosure was not required of any information concerning credit scores or any other risk scores or predictors relating to the consumer. ¹⁴ good credit rating score

Public criticism of this policy mounted as the vital role of credit scores in credit and insurance decision-making became evident. The changing environment was best illustrated by a situation that arose in February 2000 at E-Loan, an Internet lender that could quickly approve mortgage and auto loans, in part because credit scores facilitated automated decision-making. To better advise consumers where they stood, E-Loan decided to tell prospective loan applicants their FICO scores a radical move at the time. Within a month, thousands of people took advantage of the service.¹⁵ poor credit rating loan

Perhaps the best scholarship on bankruptcy is found in the books of Harvard Law Professor Elizabeth Warren.³⁰² Warren has pointed out that of the 1.66 million bankruptcies filed in fiscal year 2003, nearly 40% were by husband-wife couples, meaning that the number of people who actually filed for bankruptcy in that year was 2.14 million.³⁰³ bank credit rating

Warren said that women were both the fastest growing and largest demographic group in bankruptcy. There were 1, 661, 996 bankruptcies filed in fiscal year 2003, up 7.4% from the 1, 547, 669 filings in fiscal year 2002. Since 1994, when filings totaled 837, 797, bankruptcies in federal courts have increased 98%. From 1991-95, annual bankruptcy filings hovered around 870, 000. The biggest noticeable jump occurred in 1995-1996, when they went from 874, 642 to 1, 125, 006.³⁰⁴ Interestingly, that is when credit card companies sharply escalated their use of direct marketing solicitations offering pre-approved credit card offers. It is estimated that the industry now sends out five billion unsolicited credit card applications annually. credit card for poor credit

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Detweiler continues to advise consumers and publish, see www.ultimatecredit.com, and www.DebtConsolidationRX.com, or for her new E-Book, www. .com ³⁰¹ Send a check or money order for $4.00 to: Secured Credit Card List BHA Customer Service, 524 Branch Drive Salem, VA 24153. Also see http://www.ftc.gov/bcp/conline/pubs/credit/secured.htm ³⁰² Warren, Elizabeth, Bankruptcy (West 2002), and, Warren and Amelia Warren Tyagi, The Two-Income Trap, (Basic Books 2003) business credit rating

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http://www.bankruptcyaction.com/USbankstats.htm ³⁰⁴ http://www.abiworld.org/stats/1980annual.html Many consumers who complete a bankruptcy find that bad debts that were supposed to be discharged as part of the bankruptcy are later erroneously included on credit reports. Robert Weed, an Alexandria, Virginia attorney, said he regularly must file motions in federal bankruptcy court in order to get creditors to stop reporting discharged debts and to get the credit reporting agencies to remove them. moodys credit rating

Included In Bankruptcy

A special problem arises for individuals who are co-signers, or are otherwise legally obligated for credit cards or loans, when the other co-signer files for bankruptcy. For many years, the CRAs would report such accounts as Included In Bankruptcy even if the non-bankrupt co-signer met his or her obligation and paid the bill on time. This had an adverse impact on the creditworthiness of non-bankrupt consumers. Not only did it seem to have a negative impact on their credit scores, but also major institutions like Freddie Mac, Fannie Mae, and insurance companies do an automated scan of credit reports for serious derogatory items like bankruptcy, foreclosure, or judgment. This meant that a co-signer could be denied credit for an account that he or she in fact paid responsibly. credit card with bad credit

A class action lawsuit was filed over the issue in federal court in South Carolina. U.S. District Judge Cameron Currie had given preliminary approval to a settlement with all three CRAs that if adopted, would stop them from reporting the term bankruptcy to the credit reports of consumers who have not filed for bankruptcy.³⁰⁵ personal credit rating

³⁰⁵ Franklin E. Clark, et al. v. Experian Information Solutions, Inc.

: C/A No. 8:00-1217-22; www.fcraclassaction.com; Equifax had proposed allowing it to continue reporting included in the bankruptcy of another, but the proposal was abandoned after additional attorneys entered the case to object. The objectors were led by Michael Caddell, of Caddell and Chapman, Houston Texas. unsecured loan for bad credit

Seniors

Because it recognized years ago that a host of credit reporting issues affected its members, the American Association of Retired Persons (AARP) has closely followed the FCRA and produced research and surveys on various aspects of it, and on identity theft. In his June 2003 testimony before the Senate Banking Committee, Michael W. Naylor, AARP s Director of Advocacy said, Our research does indicate a greater vulnerability of older Americans, based on the higher proportion of those age 50 years and older who report being victimized by identity theft, compared to the proportion of all age groups making such reports. ³⁰⁶ credit rating company

Among the myriad of problems identified by Naylor was inaccuracy caused by debt collectors. Inaccuracies can also occur when a creditor sells a delinquent account to a debt collector. Once the original creditor sells the account to a debt collector, the debt collector becomes the furnisher of information on this account to the CRAs. The main source of inaccuracy in this case results from incorrect reporting of the date of initial delinquency on the account. ³⁰⁷ canadian credit rating

In a footnote to his prepared statement, Naylor added, One concern is that debt collectors may report the date they purchased or received the account as the date of initial delinquency, even though the actual date of initial delinquency was likely much earlier. Because the FCRA stipulates that most negative information remains on a consumer credit report for seven years from the date of initial delinquency, establishing this date is important to consumers attempting to restore their credit. credit union rating

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Statement of Michael Naylor, The Growing Problem of Identity Theft and Its Relationship to the Fair Credit Reporting Act, Senate Banking Committee, June 19, 2003 ³⁰⁷ Id. Continue to Next Chapter 2005 Evan Hendricks and Privacy Times, Inc. All rights reserved. Enroll in Credit Repair About Veracity Credit Consultants Contact Veracity Full Refund Policy Veracity Site Map Privacy Statement Terms of Use corporate credit rating

Veracity - Opt-Out of Pre-Screening

to secure... the right to be let alone the most comprehensive of rights and the right most valued by civilized men. - Justice Louis Brandeis (dissenting) Olmstead v. U.S. 277 U.S. 438 (1928) If you are tired of the barrage of pre-approved credit card offers, you can stop it. In fact, under the FCRA Amendments of 2003, you ultimately will have the right to stop large financial conglomerates from sharing data about you among their affiliates for marketing purposes. (Toward the end of this chapter, we will discuss how the new law strengthens your right to opt out.) credit rating fix

The right to opt-out from pre-screened offers, created by the 1996 Amendments, might be the least known right under the Fair Credit Reporting Act and no wonder. Scan one of the pre-approved credit card offers that you ve received in the mail and see if you can find the legally-required notice that (1) the credit card company got your name from either Equifax, Experian, or Trans Union, and (2) you have the right to call a toll-free number in order to stop the credit bureaus from selling your name. This effectively opts you out from future offers that are generated from your credit report data. bad credit loan personal

The Toll Free Number For Opting Out Is:

(888)-5-OPTOUT / (888) 567-8688 By calling the number and carefully following the prompts, you can opt out from pre-screening from all three credit bureaus. When you call, be prepared to press 2. By doing so, you get a choice of opting out for two years (Press one ), or opting out permanently (Press two ) or opting back in if you previously opted out (Press three ). credit how improve quickly

Bush Admin. Still Formulating Position; Oxley Vows Action, Privacy Times, Vol. 23 No. 10, May 13, 2003 Challenging Dogma At the early hearings, pro-consumer witnesses quickly challenged industry claims that state laws were bad for commerce, or even that there were uniform national standards. Fordham Law Professor Joel Reidenberg, an author and expert on privacy law, testified that three states with the strongest credit-reporting laws Vermont, Massachusetts, and California ranked 50th, 49th, and 27th in bankruptcies. Moreover, those three States offered the lowest interest rates.³⁷⁶ fico credit rating

Vermont Asst. Attorney General Julie Brill displayed three common ads from Vermont newspapers showing that zero percent financing and instant credit for mortgages, car loans, and personal loans were widely available in the state. ³⁷⁷ improving credit rating

As every pro-consumer witness pointed out, it had been the states, and not Congress, that had enacted the best financial privacy, credit reporting, and identity theft protection laws. Preemption would shut off the key source of pro-consumer solutions to real and ever-changing problems, they argued. mortgage credit rating

None of this testimony deterred industry witnesses and some House Republicans from droning on about the uniform national standards and the miracle of instant credit made possible by the federal FCRA. By early June, the Bush Administration still had not announced its position. average credit rating

On June 11, Rep. Darlene Hooley (D-OR), long-time sponsor of identity theft legislation, upped the ante. Hooley, along with 11 other so-called New Democrats, came out in support of reauthorizing preemption, provided four major conditions were met. In a letter to Committee Chairman Michael Oxley (R-OH), and ranking member Barney Frank (D-MA) Hooley and the New Dems said it was imperative that the legislation address problems that had arisen since the 1996 Amendments: (1) Identity theft and mitigation; (2) expeditious handling of consumer complaints and disputes; (3) greater accuracy in credit reports; and (4) consumers access to their credit data. loan for people with poor

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Statement of Prof. Reidenberg, House hearing, May 8, 2003, op cit. ³⁷⁷ Statement of Julie Brill, Fair Credit Reporting Act: How it Functions for Consumers and the Economy, Subcommittee on Financial Institutions and Consumer Credit, June 4, 2003 The Hooley letter was significant because it signaled to Oxley that it was possible to reauthorize preemption with a bipartisan bill, but only if badly needed consumer protections were part of the package. bureau credit rating

Crippling Effects

It was also a great prelude to the House subcommittee s June 24 hearing on identity theft, when the panel finally heard two victims describe the emotional distress and frustration they experienced spending hour upon hour trying to repair their reputations and clean up their credit reports. It seems rather incomprehensible that our previously impeccable credit reports, which clearly showed wise and careful use of credit along with a stable twenty year residence history, now showed over twenty five unauthorized credit inquiries and six out-of-state address changes, all of which had been entered on our credit reports between September and November of 1999, testified Maureen V. Mitchell, of Madison, Ohio.³⁷⁸ find credit rating

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Statement of Maureen V. Mitchell, Fighting Identity Theft The Role of the FCRA, Subcom. On Fin. Inst., June 24, 2003 Furthermore, I am concerned because I can see how it could be nearly impossible to fight these problems from overseas. ³⁷⁹ The First Bill At the end of June, Hooley and the New Dems joined forces with Oxley, Bachus, and other Republicans, in sponsoring a bill (HR 2622) to make permanent the FCRA s preemption of state law, to provide consumers with one free credit report, to require fraud alerts, and to add other provisions to protect against identity theft and improve credit report accuracy. Senator Shelby called the bill a good start. But consumer privacy groups said it fell short on several fronts, especially by not placing stronger duties on creditors, who are often culprits in causing inaccuracies. increase credit rating

Muris Calls For More

At a packed July 9 hearing on HR 2622, FTC Chairman Timothy Muris and Treasury Secretary John Snow said the Bush Administration and the FTC agreed that preemption should be reauthorized, and that new consumer protections were necessary. The pair endorsed the call for one free credit report per year. Muris went further. He said that the reinvestigation standards that applied to CRAs should be extended to creditors. The change was significant because generally, disputing errors directly with creditors did not trigger liability. Although many may not have realized it, the current law required consumers to route all disputes through credit bureaus before they could enforce their rights. credit rating uk

Moreover, Muris said a new risk-based pricing notice was needed so consumers would know when their credit reports caused them to lose out on favorable interest rates or insurance premiums. Under current law, adverse action notices were only required when a consumer was denied credit and did not accept any counter-offers. This counter-offer loophole allowed creditors to avoid giving adverse actions. In such cases, consumers were not told their credit reports were causing them to lose out. free credit rating canada

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Statement of Franklin D. Mellott, June 24, 2003. Mellott is the Military Victim Assistance Coordinator for the ID Theft Resource Center Enter Barney Frank Until 2003, Rep. John LaFalce, from upstate New York, had been the ranking Democrat on the House Financial Services Committee. LaFalce was seen as a strong privacy advocate, having sponsored legislation to strengthen financial privacy after Gramm-Leach-Bliley. In fact, LaFalce s involvement in privacy went way back to 1978, when he played a role in the enactment of the Right to Financial Privacy Act, which regulated law enforcement agents access to bank records. standard poors credit rating

Upon LaFalce s retirement, ³⁸⁰ Barney Frank assumed the position of the committee s Ranking Democrat. Frank was considered a pro-consumer, Massachusetts liberal, but most of his attention in the financial arena had been devoted to predatory lending, community reinvestment, and bankruptcy. At the outset of 2003, it was not clear how active he would be on FCRA and financial privacy. In the early FCRA hearings, the normally animated Frank was relatively subdued. credit rating numbers

When Frank got his turn to speak at the packed July 9 hearing, he announced that he had taken advantage of the quiet July 4 holidays to read the mounds of FCRA written testimony of hearing witnesses. In a key moment of leadership, Frank said that HR 2622 did not adequately tackle the long-standing problems of credit report accuracy, or maintain the privacy of medical data. He noted that many of the reforms Congress made in 1996 had not even achieved their goal of improving CRA reinvestigations or reporting by creditors. credit find fix it rating

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Despite LaFalce s retirement, some key staff members stayed on, and played an important role in ensuring that consumer voices were heard in the early hearings. He also advised the financial industry and House Re-publicans that, given the fact that Shelby and Sarbanes had not committed to reauthorizing preemption, their chances of achieving that goal would be greatly enhanced if the committee would report out a more consumer-friendly bill that could win overwhelming approval on the House floor. free credit rating score

Birnbaum said there is plenty of evidence to raise questions about the industry s correlation theory. For instance, while economic conditions vary greatly by geographic region, credit scoring models are developed on a national basis. One survey showed that in the fourth quarter of 2000, mortgage delinquencies in the South were almost 60% higher than in the West. Consumers with high credit scores in a region with weak economic conditions were more likely to encounter problems than consumers with lower scores in a region with stronger economic conditions, Birnbaum wrote.²¹⁴ company credit rating

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Birnbaum, Birny, Insurers Use of Credit Scoring for Homeowners Insurance In Ohio: A Report For the Ohio Civil Rights Commission, January 2003 ²¹⁴ Id. Then, there is bankruptcy data. If consumers who have filed for bankruptcy in the past five years are far more likely to have claims than consumers who have not filed for bankruptcies, then we would expect an increase in loss ratios if the number of bankruptcies increases dramatically. Personal bankruptcies did increase dramatically during the 1990 s, yet private passenger auto insurance loss ratios declined. The following data show a negative correlation-just the opposite of the positive correlation claimed by the insurance industry, he wrote.²¹⁵ loan for people with bad

Birnbaum argued that credit scoring allows insurers to price based on the profitability of the consumer, as opposed to the expected risk of loss. In sum, it provides a shortcut for underwriting and rating consumers by income. fixing credit rating

He said that other profitability factors include: credit get rating

• Credit scoring makes possible the expansion beyond the traditional tiers of preferred, standard, and non-standard. With more tiers, consumers can be identified for higher rates because of their place on the credit scoring scale. credit online rating

• In most states, insurer changes to underwriting guidelines receive no scrutiny. Consequently, an insurer could simply raise the cutoff score for rating tier eligibility by, say, ten points, and effectively create a 10% rate increase without mak-ing a rate filing or any other regulatory oversight. rating bad credit card

• Credit scoring enables larger insurers to build a base of customers more likely to purchase other financial products, including life insurance, retirement products, and traditional banking products. bad credit rating loan uk

• Since the FCRA allows insurers to use credit reports to market to consumers without their permission (prescreening), insurers can essentially credit rating services

• redline, that is, target consumers based upon their economic profiles.²¹⁶ credit rating in canada

Further, insurers use of credit reports and credit scores have proved controversial for other reasons. Some companies have been accused of failing to provide consumers with adverse action notices informing them that they were being charged more for insurance because of information in their credit report. Other insurers have been accused of pulling the credit reports of spouses and even non-family housemates who were not included in the policy. But before discussing these issues, let s briefly examine the way in which auto insurers typically use credit reports.²¹⁷ fitch credit rating

Silence Of The Agents

Birnbaum said an important voice was not being heard: insurance agents. There are hundreds of agents who want to come forward and tell why they are opposed to credit scoring, why credit scoring has worsened insurance availability, and how credit scoring has a disproportionate impact on poor and minority consumers. But they won t be here today because of their fear of reprisal by the insurance companies they represent. To hear from these agents, they must be given protection against these reprisals. To give you a sense of who these agents are, the following agent organizations have come out against credit scoring-National Association of State Farm Agents, National Association of Professional All-state Agents, and the United Farmers Agents Association.²¹⁸ credit rating definition

²¹⁶ Id

. ²¹⁷ Birnbaum, Insurance Credit Scoring: An Unfairly Discriminatory Practice, before the Michigan Insurance Committee, July 2003 ²¹⁸ Id. The Texas Study In a Jan. 31, 2005, Texas Insurance Commissioner Jose Montemayor said that his study found that credit scores were a reliable predictor future losses, finding there was a strong relationship between credit scores and claims experience on an aggregate basis. ²¹⁹ credit range rating

Prior to the study, my initial suspicions were that while there may be a correlation to risk, credit scoring s value in pricing and underwriting risk was superficial, supported by the strength of other risk variables, he wrote. credit rating insurance

If that proved to be the case, Montemayor said he would have effectively banned insurers use of credit scores. The study, however, did not support those initial suspicions, he wrote. Credit scoring, if continued, is not unfairly discriminatory as defined in current law because credit scoring is not based on race, nor is it a precise indicator of one s race. Recall that not all minorities are in the worst credit score categories. Further, its use is justified actuarially and it adds value to the insurance transaction. Without a change in statute that disallows credit scoring as a matter of public policy, any action to ban may be tied up in court for several years, further frustrating public expectation. bad credit rating repair

On the other hand, the study found a consistent pattern of differences in credit scores among the different racial/ethnic groups. The average credit scores for Whites and Asians are better than those for Blacks and Hispanics. In addition, Blacks and Hispanics tend to be over-represented in the worse credit score categories and under-represented in the better credit score categories. fico score credit rating

It also found a consistent pattern of differences in credit scores depending on an individual s age, with younger people having worse credit scores than older people. The best average credit scores are for individuals older than 70. credit rating chart

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Jan. 31, 2005 letter by Jose Montemayor to Gov. Rick Perry, et al. www.tdi.state.tx.us/general/pdf/credit05sup.pdf; also see Dec. 31, 2004 study www.tdi.state.tx.us/general/pdf/creditall04.pdf bond credit rating

It Started With Marketing

The move to start using credit reports probably was in part due to effective marketing by the Big Three credit reporting agencies (CRAs). The pitch was that credit scores were a better predictor of future losses than were the insurers customary methods at the time. To test this theory, some insurers provided CRAs with a list of customers, some of whom had losses. The CRAs would then append each customer s credit score and return the list. This allowed the insurers, using their own statistical tools, to correlate credit scores to losses. Most insurers became convinced that consumers with lower credit scores were more likely to have future losses. equifax credit rating

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