Your Credit Rx

Debt Settlement: Fraudulent, Abusive, and Deceptive Practices Pose Risk to Consumers

2010-09-09T17:30:00.000-07:00

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GAO-10-593T April 22, 2010

Summary

As consumer debt has risen to historic levels, a growing number of for-profit debt settlement companies have emerged. These companies say they will negotiate with consumers' creditors to accept a lump sum settlement for 40 to 60 cents on the dollar for amounts owed on credit cards and other unsecured debt. However, there have been allegations that some debt settlement companies engage in fraudulent, abusive, or deceptive practices that leave consumers in worse financial condition. For example, it has been alleged that they commonly charge fees in advance of settling debts or without providing any services at all, a practice on which the Federal Trade Commission (FTC) recently announced a proposed ban due to its harm to consumers. The Committee asked for an investigation of these issues. As a result, GAO attempted to (1) determine through covert testing whether these allegations are accurate; and, if so, (2) determine whether they are widespread, citing specific closed cases. To achieve these objectives, GAO conducted covert testing by calling 20 companies while posing as fictitious consumers; made overt, unannounced site visits to several companies called; interviewed industry stakeholders; and reviewed information on federal and state legal actions. GAO did not use the services of the companies it called or attempt to verify the facts regarding all of the allegations it found.

GAO's investigation found that some debt settlement companies engage in fraudulent, deceptive, and abusive practices that pose a risk to consumers. Seventeen of the 20 companies GAO called while posing as fictitious consumers say they collect fees before settling consumer debts--a practice FTC has labeled as harmful and proposed banning--while only 1 company said it collects most fees after it successfully settles consumer debt. (GAO was unable to obtain fee information from 2 companies.) In several cases, companies stated that monthly payments would go entirely to fees for up to 4 months before any money would be reserved to settle consumer debt. Nearly all of the companies advised GAO's fictitious consumers to stop paying their creditors, including accounts that were still current. GAO also found that some debt settlement companies provided fraudulent, deceptive, or questionable information to its fictitious consumers, such as claiming unusually high success rates for their programs--as high as 100 percent. FTC and state investigations have typically found that less than 10 percent of consumers successfully complete these programs. Other companies made claims linking their services to government programs and offering to pay $100 to consumers if they could not get them out of debt in 24 hours. GAO found the experiences of its fictitious consumers to be consistent with widespread complaints and charges made by federal and state investigators on behalf of real consumers against debt settlement companies engaged in fraudulent, abusive, or deceptive practices. Allegations identified by GAO involve hundreds of thousands of consumers across the country. Federal and state agencies have taken a growing number of legal actions against these companies in recent years. From these legal actions, GAO identified consumers who experienced tremendous financial damage from entering into a debt settlement program. For example, a North Carolina woman and her husband fell deeper into debt, filed for bankruptcy in an attempt to save their home from foreclosure, and took second jobs as janitors after paying $11,000 to two Florida companies for debt settlement services they never delivered. Another couple, from New York, was counted as a success story by an Arizona company even though the fees it charged plus the settled balance actually totaled more than 140 percent of what they originally owed.

The FHA Rethinks Its Mortgage Lending

2010-09-02T18:36:00.000-07:00

The FHA Rethinks Its Mortgage Lending

No. 03-1235. - JOHNSON v. MBNA AMERICA BANK NA LLC - US 4th Circuit

2010-08-08T17:16:00.000-07:00

This court case represents how some collection agencies violate the FCRA by routinely performing "unreasonable" investigations when a consumer disputes an erroneous item on their credit report.

No. 03-1235. - JOHNSON v. MBNA AMERICA BANK NA LLC - US 4th Circuit

The new Credit Card Act of 2010

2010-08-05T23:22:00.000-07:00

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The events of the 2008 credit crisis and its fallout will shape the economic landscape for decades to come. The latest credit card usage trends are not encouraging. Take a quick look at these statistics provided by Credit Cards.com -an online credit card statistics data base:

Total cards in circulation in U.S.

(Through year-end 2009)

Visa credit: 270.1 million, down 11 percent (Source: Visa.com)

Visa debit: 382 million, up 18 percent (Source: Visa.com)

MasterCard credit: 203 million, down 22 percent (Source: MasterCard.com)

MasterCard debit: 125 million, up 1 percent (Source: MasterCard.com)

American Express credit: 48.9 million, down 9 percent (Source: AmericanExpress.com)

Discover credit: 54.4 million, down 6 percent (Source: Discover.com)

TOTAL CREDIT CARDS: 576.4 million

TOTAL DEBIT CARDS: 507 million

Most general purpose credit cards in circulation in 2008

Chase - 119.4 million

Citi - 92 million

Bank of America - 80.2 million

Discover - 48 million

American Express - 46.5 million

Capital One - 46.3 million

HSBC - 38.8 million

GE Money - 27.2 million

Target - 23.4 million

Wells Fargo - 17.3 million

(Original source: Nilson Report, February 2009)

Better take a second look at that credit card bill!According to the venerable researchers at TransUnion- one of the three major Credit reporting bureas-analyzed information from a data base of 27 million consumer records illustrating consumer credit use and performance. Nationally, the average credit card debt rose 4.81% compared to the 3rd quarter of 2008 , to $1,694 per houshold. Yet, credit card offers through the mail and other media continue to increase. The high rates of debt and delinquencies can easily be attributed to the current economic crisis; job losses, lay-offs, mortgage foreclosures, etc.. No doubt the current White House administration is aware of these dismal and downright scary numbers. As part of a comprehensive financial reform package, President Obama recently signed into law the Credit Card Accountability Responsibility and Disclosure Act. Here is the official White House Press release:

THE WHITE HOUSE

Office of the Press Secretary

________________________________________________________

FOR IMMEDIATE RELEASE May 22, 2009

FACT SHEET: REFORMS TO PROTECT AMERICAN CREDIT CARD HOLDERS

President Obama signs Credit Card Accountability, Responsibility, and Disclosure Act

WASHINGTON – Today, President Obama signs the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, marking a turning point for American consumers and ending the days of unfair rate hikes and hidden fees.

Americans need a healthy flow of credit in our economy, but for too long credit card contracts and practices have been unfairly and deceptively complicated, often leading consumers to pay more than they reasonably expect. Every year, Americans pay around $15 billion in penalty fees. Nearly 80 percent of American families have a credit card, and 44 percent of families carry a balance on their credit cards. To tackle these problems, the Administration moved swiftly with the Congress to enact reforms.

"With this new law, consumers will have the strong and reliable protections they deserve. We will continue to press for reform that is built on transparency, accountability, and mutual responsibility – values fundamental to the new foundation we seek to build for our economy," President Obama said.

In the Senate and throughout the campaign, President Obama called for measures to strengthen consumer protection in the credit card market. This legislation was made possible by the leadership of Chairman Frank and Representatives Maloney and Gutierrez in the House, and Chairman Dodd, Ranking Member Shelby and Senator Levin in the Senate. It builds on the strong first step taken by the Federal Reserve toward improving disclosures and ending unfair practices.

Principles for Long-term Credit Card Reform

First, there have to be strong and reliable protections for consumers.

Second, all the forms and statements that credit card companies send out have to have plain language that is in plain sight.

Third, we have to make sure that people can shop for a credit card that meets their needs without fear of being taken advantage of.

Finally, we need more accountability in the system, so that we can hold those responsible who do engage in deceptive practices that hurt families and consumers.

The Administration applauds the legislative efforts of both the House and the Senate. By working closely together, the House Financial Services Committee and the Senate Banking Committee were able quickly to enact strong protections that the President signs into law today. Below we highlight the critical elements of reform in this new law:

Bans Unfair Rate Increases

Prevents Unfair Fee Traps

Plain Sight /Plain Language Disclosures

Accountability

Protections for Students and Young People

Key Elements of the Credit CARD Act of 2009

Bans Unfair Rate Increases: Financial institutions will no longer raise rates unfairly, and consumers will have confidence that the interest rates on their existing balances will not be hiked.

Bans Retroactive Rate Increases: Bans rate increases on existing balances due to "any time, any reason" or "universal default" and severely restricts retroactive rate increases due to late payment.

First Year Protection: Contract terms must be clearly spelled out and stable for the entirety of the first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.

Bans Unfair Fee Traps:

Ends Late Fee Traps: Institutions will have to give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.

Enforces Fair Interest Calculation: Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do. The act also ends the confusing and unfair practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called "double-cycle" billing.

Requires Opt-In to Over-Limit Fees: Consumers will find it easier to avoid over-limit fees because institutions will have to obtain a consumer’s permission to process transactions that would place the account over the limit.

Restrains Unfair Sub-Prime Fees: Fees on subprime, low-limit credit cards will be substantially restricted.

Limits Fees on Gift and Stored Value Cards: The act enhances disclosure on fees for gift and stored value cards and restricts inactivity fees unless the card has been inactive for at least 12 months.

Plain Sight /Plain Language Disclosures: Credit card contract terms will be disclosed in language that consumers can see and understand so they can avoid unnecessary costs and manage their finances.

Plain Language in Plain Sight: Creditors will give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers’ accounts afterwards. For example, pre-opening disclosures will highlight fees consumers may be charged and periodic statements will conspicuously display fees they have paid in the current month and the year to date as well as the reasons for those fees. These disclosures will help consumers make informed choices about using the right financial products and managing their own financial needs. Model disclosures will be updated regularly based on reviews of the market, empirical research, and testing with consumers to ensure that disclosures remain clear, useful, and relevant.

Real Information about the Financial Consequences of Decisions: Issuers will be required to show the consequences to consumers of their credit decisions.

Issuers will need to display on periodic statements how long it would take to pay off the existing balance – and the total interest cost – if the consumer paid only the minimum due.

Issuers will also have to display the payment amount and total interest cost to pay off the existing balance in 36 months.

Accountability: The act will help ensure accountability from both credit card issuers and regulators who are responsible for preventing unfair practices and enforcing protections.

Public posting of credit card contracts: Today credit card contracts are usually available only in hard copy and not in plain language. Now issuers will be required to make contracts available on the Internet in a usable format. Regulators and consumer advocates will be better able to monitor changes in credit card terms and evaluate whether current disclosures and protections are adequate.

Holds regulators accountable to enforce the law: Regulators will be required to report annually to the Congress on their enforcement of credit card protections

Holds regulators accountable to keep protections current:

Regulators will be required to request public input on trends in the credit card market and potential consumer protection issues on a biennial basis to determine what new regulations or disclosures might be needed.

Regulators will be required either to update the applicable rules, or to publish findings if they deem further regulation unnecessary.

Increases penalties: Card issuers that violate these new restrictions will face significantly higher penalties than under current law, which should make violations less likely in the first place.

Cleans Up Credit Card Practices For Young People at Universities. The act contains new protections for college students and young adults, including a requirement that card issuers and universities disclose agreements with respect to the marketing or distribution of credit cards to students.

So, with rising variable rates, deferred interest plans that leave the consumer worse off than when they initially accepted the card, and bogus advance notice rules, the consumer is once again fleeced and put out to air-dry in a cold market place. The best defense is to control how many cards you have in your wallet, control your spending, and get educated BY YOUR CREDIT CARD ISSUER regarding the small print of your credit card aggreement. It will save you a lot of money in the long run.

How FACT-ACT Section 312 amends FCRA Section 623

2010-08-05T22:57:00.000-07:00

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Today on c-span, I watched and listened to a Senator speak about a bill that would infuse small community banks with about 7 billion dollars to give our lagging economy a shot of much needed "adrenaline." While the recent economic downturn has wreaked havoc on general bank lending, small banks (those with revenues under 10 billion annually) have suffered the most. Even as banks like Goldman Sachs, Citicorp, and Bank of America (which currently holds more mortgage paper than any bank in the US) are starting to pay back the TARP (Troubled Asset Relief Program) funds they borrowed from us tax payers, they still refuse to loosen their new, tighter lending policies. This fact is forcing our government consider new ways to stimulate the economy without raising taxes. Timothy Geithner, the current US Treasury Secretary said at a Senate hearing that TARP funds were ultimately meant to spur small business, but admitted that the program has not performed as well as anticipated. Anyone who is still looking for work knows that banks aren't going to start lending again until people start working again. While I don't subscribe to the Ronald Reagan trickle-down economic theory, I do believe that big and small businesses, including banks will be last to participate in any kind of economic recovery until they see a sharp increase in jobs all over the country.

Unemployment compensation claims are still increasing for heavens sake!! The Obama administration is now touting that at least claims aren't increasing at the same rate they were a year ago. I guess that's an interesting perspective, but it does not help those who still cannot find work after more than a year of being on the unemployment compensation rolls. Let's be clear, the US economy is still in trouble, and some are even talking about a "double-dip" recession. Most agree that the housing crisis was the cause of the recession, and is likely the key to any future economic recovery. Because the housing crisis also caused a crisis of dependable and accurate credit information, our banking system has become heavily dependant upon procedures and systems that do not allow misinformation to occur.

To this end, Congress has amended the FRCA Section 623 with a new FACT Act law that is located at Section 312. Section 623 of the FCRA is entitled: Responsibility of Furnishers of Information to Consumer Reporting Agencies. In the interest of accuracy, especially with regard to a consumers ability to dispute the accuracy of information directly with an issuer of information/credit, or an original creditor, companies realized it was in their best interest to have policies and procedures in place that show how they control, and access data on it's customers.

Section 623 places a requirement on issuers of information to provide accurate information to the credit bureaus. The FCRA gives consumers the right to directly engage the issuer of credit in the dispute process by demanding to see exactly HOW they came to their conclusions about debts they say the consumer owes them; Issuers are required to provide, upon written request, all documents that prove the legitimacy of the debt; prove the alleged debt is strictly accurate with regard to the amount, correct dates of delinquency, and all late payments. If they cannot provide proof in those and other areas, they must cease reporting the information to the credit bureau, who in turn must delete the debt listing from the consumers credit file.

The new FACTA Section 312 gives FCRA Section 623 the teeth it should have been born with. It places not only a requirement on issuers of information to keep complete and accurate records, it also creates a right of the consumer to bring a lawsuit under FCRA Section 616 - wilful non-compliance. The FCRA requires that issuers of credit must perform a "reasonable investigation" and that they must have appropriate audit plans in place to evaluate their own ability to retain complete and accurate records. If they do not have such a program in place, there is no way they can claim they are following reasonable procedures to insure their data is accurate.

What does all of that mean for a consumer trying to restore their credit? It means the dispute process just got a little easier, in some ways. The dispute process can be complicated, but these two important sections of the FCRA and FACTA make it easier for the consumer to navigate the process. Just remember, my brother in arms, that credit repair is not about finding loopholes in the law, or luck. It's about protecting your rights as a consumer and holding companies accountable for violating those rights.

What is Debt Validation and does it actually work?

2010-05-07T01:21:00.000-07:00

Most people who try to fix their own credit will sooner or later run across information on debt validation. The first mistake people make when trying to validate a debt is to confuse it with debt “verification.” Let’s get this confusion clarified before we actually get into what validation actually is and how it can be used to repair a credit report.

• Debt validation refers to the process of a COLLECTION AGENCY providing a consumer with proof that a debt actually belongs to that consumer.

• Debt verification refers to the process of a CREDIT REPORTING AGENCY verifying with an original creditor or a collection agency that a debt actually belongs to a consumer.

Now that we know who the debt validation process refers to – collection agencies and NOT CRA’s (credit bureaus), we can now find out how the process works with credit repair.

The debt validation process can be found in Section 803 of the Fair Debt Collection Practices Act (FDCPA). It provides:

Section 803 (b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or any copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.

Plus, they must show proof positive that you owe them this debt. It's not enough to send you a computer-generated printout of the debt. They must prove in writing that they actually purchased the debt from the original credit grantor. In addition to that, they must also foot the bill for the cost of obtaining the information from the original creditor.

One way of looking at it is like this: Suppose you borrowed $50.00 from your best friend Lisa, then her friend Brian came up to you and said he bought your debt from Lisa and you now owe him the money you once owed to Lisa. These might be some of the thoughts you would have:

1. How do you know that Brian is actually collecting for Lisa? What legal documents does Brian have to prove that he is legally authorized to collect?

2. How much is the actual debt? What payments have already been made on the account? Where is the accounting of the debt, including all interest and fees? Are these fees and interest amounts legit?

3. Do you really owe Brian the money? Or was it actually a third party, James? Where is the contract showing that you made a deal with Brian and not James?

4. How do you know if you pay Brian, Lisa won’t come back and ask for the money you originally owed her?

It works the exact same way when a collection agency sends you a letter stating that you owe them a debt you once owed an original creditor. They must prove you owe them the debt. Their word on official looking letter-head or a phone call is not enough. If the collection agency cannot provide legal proof, they are in violation of the FDCPA and can be sued. Further, they cannot continue to report the debt the CRA’s, who in turn cannot continue to list the debt on your credit report. The listing must be immediately deleted. You have this right as a consumer and the law is on your side should you choose to use it.

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Time Limitations imposed by the Fair Credit Reporting Act

2010-05-07T01:13:00.000-07:00

As a credit repair professional I have found it necessary to stay abreast of all the current laws, and new developments in the credit repair industry. Most of credit repair law is fairly straight forward and understandable to the laymen – after all, the laws were created for the consumer who desires to address their own credit issues without having to pay anyone to do it for them. However, as with any law, interpretation can be affected by situation, context and new litigation. There are as many wrong answers out there on the Internet as there are people writing about credit repair, so be careful!

I am a member of several credit repair blogs where the members have the opportunity to write about their personal experiences dealing with their credit issues. In some cases you can learn a great deal about credit repair by reading about the real-life experiences of others who are trying to do the same thing you are doing. If you look long enough, sooner or later you will come across a person who happens to be writing about a situation very similar to your own. A word of warning though, don’t take it as “gospel” just because someone on a blog says something is true. Do your own research; check other blogs, access the Federal Trade Commission’s website, Google your question in as many ways as possible to find answers to your questions. There is nothing more valuable than doing your own due diligence.

This article addresses time limitations imposed by the Fair Credit Reporting Act (FCRA) related to charged-off accounts. What I mean here is how long a charge-off can remain on your credit file after it has been reported by an original creditor or a collection agency. There appears to be much confusion about this issue and I hope this article will clear up some of that confusion.

Section 605 (a) (4) of the FCRA clearly prohibits credit reporting agencies (CRA’s) from reporting charge-offs that are more than 7 years old. Here’s how the seven year period is calculated: Section 623 (a) (5) of the FCRA, which became law in 1997 requires a creditor that reports a charge-off to a CRA to notify the agency (within 90 days of reporting the account) of the month and year of the commencement of the delinquency that immediately proceeded the charge-off. Section 605 (c) (1) provides that the seven year period BEGINS 180 days from that date. For example, if you miss your monthly car payment (an Installment Account) and that missed payment leads to the account becoming delinquent, the credit grantor must within 90 days report the exact date when they considered the account delinquent to the CRA. The CRA must then record that date as the start of the 180 day period, after which the seven year time limit begins. Here’s an example of how the process works:

1. You miss your last car payment

2. Account goes into delinquent status

3. Credit grantor must report to the CRA month and year account was considered delinquent

4. 180 days after that month and year, seven year clock commences

Contrary to popular opinion, no subsequent event or change of circumstances can interrupt the clock once it commences, whether it be the resale of the account to a collection agency, or even subsequent payments made on the account by the consumer. Nothing can reset the seven year limitation once it has commenced.

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Do you know your Credit Score?

2010-05-07T01:11:00.000-07:00

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Let’s face it; times are tough on just about everyone these days. Housing prices may be down, but it takes stellar credit to purchase one because of the recent housing foreclosure crisis. The national unemployment rate is the highest it’s been in 30 years, millions of people can’t afford health care. The list goes on and on. We live in a buy now pay later society and it has finally started to catch up to most Americans. We are definitely in an economic recession, but that doesn’t mean we have to sit back and let it happen as if we were absolutely powerless. There are things we as consumers can do to manage our finances so this recession doesn’t have such a negative impact on our lives. Effectively managing one’s finances is more important than ever under this current economic recession. Knowing how to manage your money can make the difference between coming through the current economic storm unscathed, or loosing everything, or even worse, having to file for bankruptcy.

Over 82 million Americans live with poor credit scores. According to Office of Government Accountabilty, many consumers are aware of the basics of credit scores, but are not aware of the factors that can lead to a low or high score. Further, statistics show that most people with high FICO scores tend to know what’s contained their credit report, and they also tend to know what their FICO score actually is. The opposite is true for people with low credit scores. They tend not to know what’s in their credit report and generally do not know their FICO score. I do not claim to know why it is that way, and I am not here to judge anyone. I am writing this article to let people know how important, and easy it is to find out what’s contained in their credit reports and how to remove any information that might be inaccurate, incomplete or just plain wrong.

According to a study conducted by the research firm, US PIRG, almost 80 percent of Americans have mistakes on their credit reports. You read it right, almost 80 percent! Even further, one in every four credit reports contain erroneous information severe enough to cause the denial of credit or employment, not to mention having to pay higher insurance premiums, higher rental costs, and higher percentage rates for items such as automobile loans. For example, on a $300,000 mortgage loan, the difference in payments between a 620 FICO score and a 720 FICO score is over $70,000 over the life of a 30 year loan. These facts, taken together show a grim picture of the credit industry and clearly reveal the importance of knowing what the “big three” credit bureaus are “telling” business about your financial habits and history. What is most disturbing here is that some of the information they have on record in our consumer credit files is outright false!

What you can do?

As consumers, we have several weapons that can help us defend ourselves against the credit industry and the machinations of the “big three” credit bureaus. It is called the Fair Credit Reporting Act (FCRA). The Fair Credit Reporting Act is a United States federal law that regulates the collection, dissemination, and use of consumer information, including consumer credit information. Along with the Fair Debt Collection Practices Act (FDCPA), it forms the base of consumer credit rights in the United States. It was originally passed in 1970, and is enforced by the US Federal Trade Commission and private litigants. Knowing the pertinent sections of these laws is critical to anyone trying to repair their credit and must be referenced when dealing with the credit bureaus, collection agencies, and orginal creditors.

Home Buying Process - Tips for Buying a Home | Fannie Mae

2010-03-03T16:28:00.000-08:00

Home Buying Process - Tips for Buying a Home Fannie Mae

Kirk McClain - Blog on BrightFuse - A Talent Community

2009-10-05T09:50:00.001-07:00

Kirk McClain - Blog on BrightFuse - A Talent Community

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Do we need a new Consumer Financial Protection Agency?

2009-08-13T13:12:00.000-07:00

Once upon a time, back in the good o'le days, most people didn't even have to know what their credit score was before making major purchases like a house or car. It wasn't until recently that knowing your credit score was even considered important by financial planners.

Now days, not knowing what's on your credit file is tantamount to financial suicide. The recent phenomenon of ID theft has millions of consumers worried about who has access to their credit file and what protections are in place to ensure their file is secure from unauthorized eyes. Even the smart consumer can be duped by phishing scams if the scammer tech saavy and sophisticated enough. According to the White House, the Fair and Accurate Credit Transactions Act of 2003 was supposed to provide consumers, companies, consumer reporting agencies, and regulators with important new tools that expand access to credit and other financial services for all Americans, enhance the accuracy of consumers' financial information, and help fight identity theft. Yet according to the US Public Interest Group (PIRG) Congress did not complete the job of protecting citizens from identity theft or credit bureau mistakes when it enacted the 2003 Fair and Accurate Credit Transactions (FACT) Act. Further, some identity theft protections of the FACT Act are enhanced and improved if states take additional action.

The FACT ACT, or more commonly, FACTA changed a lot how credit reporting agencies and issuers of credit like VISA, MasterCard and many others do business. It expanded the powers that the average consumer has regarding disputing information in their credit file they believe to be inaccurate, outdated or just plain wrong. It also gave consumers the power to dispute directly with the original creditor and required the creditor to prove the debt was the consumers instead of the other way around.

The president has been lobbying for a new federal agency called the Consumer Financial Protection Agency. This information is critical if you want to know more about how the credit industry affects our economy and your bank account. Elizabeth Warren, professor at Harvard and Chair of the Congressional Oversite Panel discusses the credit market. In the attached You Tube video, she clearly explains our broken credit market and how it needs reform.

FICO 08 - The real story

2009-08-09T18:46:00.000-07:00

A few years ago I was on another one of my bad credit-induced searches for ways to improve my FICO score. It was then when I first discovered the concept known as "piggybacking." Credit Piggybacking is essentially a matching service that connects people with a strong credit history, called “credit-lenders” to customers with poor credit scores, who are willing to pay a price to boost their scores. The key to the piggybacking business is how authorized user accounts are incorporated into the FICO score calculation. One company who sells these credit tradelines explains the method like this: "When one person is listed as an authorized user on someone else's credit card, someone with a healthy credit rating. The authorized user does not typically use the card, but the credit history of that card appears on their credit report. When the new history appears in the authorized user's credit reports, their credit score is immediately recalculated to show an increase as a result of the new card's presence in the report. While the authorized user does not receive the physical card or account number, they do receive the benefit of having that particular credit card's entire credit history - limit, balance, payments - in essence "copied and pasted" onto their credit report, looking as though it were there the entire time. Having a higher FICO credit score means lower interest rates, easier loan approvals, higher credit limits and better terms for consumers."
Being a critical thinker, I thought there must be a catch. So I started doing research on this phenomenon and soon found out that it was indeed a legitimate way of drastically increasing a person's FICO score in very short period of time. I also found that this very effective method had been around for awhile. In fact, by the time I found out about it the Fair Isaac Company had already was in the process of changing their credit scoring process to do away with piggybacking entirely. By the summer of 2007 the word was all over the Web that piggybacking would be a thing of the past by the end of the year.
Well, the end of '07 came and went and credit repair companies were still advertising the use of authorized tradelines as a way to increase your credit score. I started checking credit repair blogs to see if people was saying and I got a mixed bag: some were saying au accounts were dead, others were saying they were still selling them successfully. This presented a major problem because I had no way of finding out who was right and who was wrong. And since purchasing a tradeline or au account costs on average around 1500-2500 dollars I wasn't about the take the risk without knowing the truth. With so much at stake, I was determined to get to the bottom of piggybacking so I started doing more research. A few years ago I was on another one of my bad credit-induced searches for ways to improve my FICO score. It was then when I first discovered the concept known as "piggybacking." Credit Piggybacking is essentially a matching service that connects people with a strong credit history, called “credit-lenders” to customers with poor credit scores, who are willing to pay a price to boost their scores. The key to the piggybacking business is how authorized user accounts are incorporated into the FICO score calculation. One company who sells these credit tradelines explains the method like this: "When one person is listed as an authorized user on someone else's credit card, someone with a healthy credit rating. The authorized user does not typically use the card, but the credit history of that card appears on their credit report. When the new history appears in the authorized user's credit reports, their credit score is immediately recalculated to show an increase as a result of the new card's presence in the report. While the authorized user does not receive the physical card or account number, they do receive the benefit of having that particular credit card's entire credit history - limit, balance, payments - in essence "copied and pasted" onto their credit report, looking as though it were there the entire time. Having a higher FICO credit score means lower interest rates, easier loan approvals, higher credit limits and better terms for consumers."
Being a critical thinker, I thought there must be a catch. So I started doing research on this phenomenon and soon found out that it was indeed a legitimate way of drastically increasing a person's FICO score in very short period of time. I also found that this very effective method had been around for awhile. In fact, by the time I found out about it the Fair Isaac Company had already was in the process of changing their credit scoring process to do away with piggybacking entirely. By the summer of 2007 the word was all over the Web that piggybacking would be a thing of the past by the end of the year.
Well, the end of '07 came and went and credit repair companies were still advertising the use of authorized tradelines as a way to increase your credit score. I started checking credit repair blogs to see if people was saying and I got a mixed bag: some were saying au accounts were dead, others were saying they were still selling them successfully. This presented a major problem because I had no way of finding out who was right and who was wrong. And since purchasing a tradeline or au account costs on average around 1500-2500 dollars I wasn't about the take the risk without knowing the truth. With so much at stake, I was determined to get to the bottom of piggybacking so I started doing more research. I soon found out that FICO 08 did not affect authorized user tradelines because the new Fair Isaac Algorithm violated a section of the Equal Credit Opportunity Act. Fair Isaac's president admitted this at a congressional hearing in July of 2008. But instead of admitting to this publicly, the Fair Isaac Company issues a press release indicating the exact opposite, thus starting all the internet rumors that piggybacking was no longer useful in increasing the FICO score. Moreover, because of all the confusion regarding the new FICO algorithm, Experian, Equifax and Transunion decided to create their own credit scoring system to replace the embattled FICO. The new scoring system, "Vantage Score" was on its way to industry-wide acceptance until Fair Isaac brought a law suit against "the big three" for monopolizing their market share.
Conclusion: There will be no FICO '08 until the current litigation is over and Fair Isaac re-releases its new algorithm. Piggybacking is, as of this writing, still a viable, legitimate and legal method of increasing your FICO score.