Credit Repair 4 Dummies Newsletter

Piggybacking is not long for this world. Fair Isaac Corp. has announced that within nine months the algorithm, they use to arrive at FICO scores will be changed. The new formula will virtually eliminate the effectiveness of piggybacking.

Presently an authorized user on someone else’s account benefits from the payment history of that user on that account. It is an easily exploited loophole in the credit scoring system. Authorized users, in spite of holding no payment responsibilities and making no payments, inherit the credit history of the account holder even though they may be total strangers. Piggybacking take advantage of this loophole in the following way: Someone with a sub-par credit rating will pay a credit repair agency to be added on as an authorized user of a client of the credit repair company with a superior FICO score and payment history. The company in turn pays a fee to their client cardholder for allowing the additional user to be added. This results in instant, huge increases to the credit scores of the added user.

The lending industry has been troubled over this practice for some time now. Their sentiments are summed up by Craig Watts, spokesman for Fair Isaac who said “The only purpose of the service is to misrepresent consumers to lenders.”

In response to this issue Fair Isaac will discontinue counting these authorized user accounts in their credit scoring calculations. This will put an end to piggybacking.An estimated 3.3 million people in the United States will see their credit scores drastically impacted in a negative way. This is due to the fact that,for these individuals, most of their credit history has been accumulated by their status as an authorized user on another individual’s account, usually a spouse or parent.

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According to Edward Jamison, founder of CreditCRM.com which is one of the leading credit repair websites on the net, the demand for credit repair services has risen by over 33 percent over the last 60 days. It is generally believed that this is in response to tighter mortgage loan qualifying standards brought on by recent upheavals in the mortgage loan industry. In recent weeks the minimum credit scores required for approval on a mortgage loan has risen throughout lending organizations nationwide.

Now, more than ever, credit repair in general and credit repair services in specific are being sought out by consumers who wish to qualify for home loans and other lines of credit. Although this is a recent trend, the basics of credit repair remain unchanged. A complete guide to all facets of credit repair can be found here the Credit Repair 4 Dummies home page.

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Considering how critical one’s FICO score is to our lives today, it’s amazing how little people know about what exactly makes up this all-important figure. We will describe some of these facts in the following.

Firstly, the FICO score ranges from 300 to 850. The higher your score the better risk creditors will consider you to be. Although it is not totally uncommon for people to score above 800 it is extremely unlikely someone would have a score in the 300’s. A score in the 500’s is considered to be very poor, typically indicating a bankruptcy or other very serious credit problems.

The FICO score is comprised of five factors:

• Payment history, this makes up 35% of the score
• Amount owed, this makes up 30% of the score
• Length of credit history, this makes up 15% of the score
• New Credit, this makes up 10% of the score
• And, Types of credit used, which also makes up 10% of the score

Thing that do not affect your score are:
Private information having nothing to do with actual payment history such as race, religion, sex, marital status, age, salary, location of primary residence, child and/or family support or rental payments.

All 3 of the credit reporting agencies, Experian, Equifax and Trans Union calculate a FICO score on every individual applies for and/or receives credit. The 3 scores will most often be different but only slightly. The reason for this is that they do not all receive the exact same information on any given consumer from lending institutions. The higher these scores are for you the greater benefit you will derive on credit you receive.

Lets take a look at an example: Person A has a FICO score of 760 and Person B has a score of 640. They both apply for a mortgage loan of $250,000. Person A would qualify for a loan with an interest rate of 6.36% with a monthly payment of $1,680. Person B would qualify for a loan with an interest rate of 7.95% and a monthly payment of $1,971. Thats a difference of $3,495 annually.

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A bankruptcy on your credit record does not spell the end of the world. It is not as hard as one may think to get your credit on the mend following a bankruptcy. This article at the Credit Repair 4 Dummies main page will give you tremendously helpful tips on how to bring your FICO score back to life. Giving up is the worst thing you can do. Many people do and, tragically, this is totally unnecessary.

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Consumers with below average credit scores are able to short-cut the credit rebuilding process, which is normally quite lengthy, by an increasingly popular method known as piggybacking. Basically, under this practice someone with poor credit can be added on as an additional user on a credit card owned by someone with exceptional credit. It is, in essence, the same thing as when parents add their children to their own cards to help the child establish credit.

For the cost of about $2,000 it is possible to rent slots as additional users on the credit card accounts of three consumers with exemplary payment histories. Nearly instantaneous increases of more than two hundred points have been reported. This makes the initial outlay well worth it, as several times that amount can ultimately be recouped by much lower costs on big ticket loans, such as automobile or mortgages.

The process works because when the computers see the new accounts that have been added to the consumer’s records it factors in the payment history, which is always exceptional, of the rented accounts. This has an enormous benefit to the renter’s score.

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Credit history

This article will describe with the general concept of credit history, for detailed information about the same topic in the United States see Credit score (United States).

Credit history is, in many countries, a record of an individual’s or a company’s past borrowing and repaying history, including information about late payments collection activities and bankruptcy. The term “credit worthiness” can be used synonymous to credit history or to credit score.

When an individual fills out an application for credit from a bank, store or credit card company, their credit history data is sent to one or more of the three major credit bureaus,Equifax, Experian and Trans Union; along with continuous updates on the status of his or her accounts, personal informatin, or any other changes made since they last applied for credit.

This information is used by lenders such as credit card companies to determine an individual’s or entity’s credit worthiness; that is, determining an individual’s or entity’s means and willingness to repay an indebtedness. This helps determine whether to extend credit, and on what terms. With the adoption of risk-based pricing on almost all lending in the financial services industry, this report has become even more important since it is usually the sole element used to choose the annual percentage rate (APR).

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About Credit Scoring

Most anyone who has obtained a home mortgage in the past 5 years or so has heard about credit scoring. How many of you have been told “your scores are great”, or “if your score were 10 points higher, your rate would be better by 1/4 point”? Probably most of you.

We in the industry started to become aware of “scoring models”, as they are called, as early as 1994. The use of scoring models in the mortgage industry came about as the major secondary market players, known as Fannie Mae and Freebie Mac, started to develop automated underwriting systems. They had been in use for a long time for auto lenders and credit card issuers.

The early creators of the automated underwriting systems felt that, if someone could go to a Mercedes dealership at 10 am and drive off the showroom floor an hour later with a $100,000 car (still more expensive than homes are in many parts of the country), they ought to be able to obtain a home loan the same way. The logic in this should be obvious… after all, cars are rolling stock, so they can disappear, they depreciate and usually people don’t live in them. Houses are attached to a foundation, they usually appreciate and people usually live in them. Using that logic, the industry should be able to make the home buying process easier for everyone.

This theory sounds good, but it is only in the last year that we have seen some relief from the mountains of paper that go into loan files, and it is because the scoring models have become more refined. Still, there is progress yet to be made and the industry is grinding slowly in that direction. Scoring models figure prominently in the future of how people obtain home mortgages.

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