New Credit Report Tracks Our Financial Behavior


Hello and welcome to Your Money 2.0. I’m Thomas Fox, community outreach director
at Cambridge Credit Counseling. Over the last few years a number of exotic
mortgage products combined with loose lending practices and Wall Street hocus pocus dealt
a devastating blow to our economy. Although the pace is slow, we are recovering;
at the same time many people are looking to steps we could take to avoid similar catastrophes
in the future. Most of us would agree that a more thorough
examination of our borrowers overall financial behavior would have prevented the wave of
foreclosures we’re currently experiencing. Enter CoreLogic, CoreLogic is an information
broker and the newest entrant into the credit reporting industry. The organization’s new core score attempts
to give lenders a deeper understanding of an individual’s spending habits. What makes CoreLogic different? The information they collect isn’t typically
captured by the three big credit bureaus which is why many lenders are so interested. The CoreLogic organization has established
relationships with a variety of stakeholders in the public and private sectors. Just about everyone from small local lenders
to county courthouses provide records to the company. Until recently, the information CoreLogic
gathered was primarily used for market research but now will be used to help assess our financial
habits. For instance, if you rent an apartment or
own a condo any late payments or homeowner association dues are likely on file. In addition to child support judgment, evictions
and property liens reported by the courts, payday lenders and small community banks also
supply information on how you manage financial obligations. If you owe more on your home than what is
worth, CoreLogic knows that too. Not surprisingly, the inclusion of this kind
of information in your credit profile has some consumer advocates concerned. Chi Chi Wu, a staff lawyer at the National
Consumer Law Center, voiced her concerns in a New York Times article. She noted that there is evidence that all
the new report could do for a substantial portion, low and moderate income consumers,
is to make their credit files worse. Wu cited utility bills as an example, during
the winter months when heating bills climb many customers fall behind they get caught
up later in the spring, but this inconsistent pay pattern has the potential to negatively
impact a consumers’ core score report. Ms.Wu also suggested some reasons why people
may withholding rent payments for instance if the landlord failed to adjust heating or
hot water problems again, such legitimate activity, would adversely affect a consumer. Wu also questions perhaps the largest threat
to a consumers’ core score profile, payday loans. According to Ms. Wu payday loans and other
high cost credit are very onerous, and people have trouble paying them back because they
have a four hundred percent APR. Many payday borrowers find themselves trapped
in an unfortunate cycle, taking out one payday loan to repay another thereby prolonging their
indebtedness. Factoring payday loan payment histories into
a credit score would penalize many consumers. The core score report is already available
to lenders and the corresponding credit score is currently in development with FICO, the
developer of the most widely used credit scoring formula. The three major credit bureaus, TransUnion,
Experian and Equifax, apply FICO’s scoring model to the information in our reports to
generate a credit risk score, a three digit number ranging between 350 and 800 which describes
how well we tend to manage our financial responsibilities. Based on this number lenders can decide whether
or not to lend us money and if so at what interest rate. If you have a high credit score you’re a low
risk if you have a low credit score you’re a high risk. The core score credit score is being created
specifically for mortgage and home equity lenders, however there’s a good chance that
a more sophisticated tool will eventually be developed, one that will predict how we
might behave under different loan terms. Because CorelLogic will be the country’s fourth
major credit reporting bureau, you’ll be subject to the fair credit reporting act. Within a year the new report will be available
at annualcreditreport.com and consumers will be entitled to one free copy every year. What does this mean for you, given the additional
information considered by CoreLogic and the money you could lose through higher interest
rates, it’s more crucial than ever that you do your very best to make every payment on
time and in full. The best way to make sure that happens is
by preparing and following an accurate monthly budget. Until next time, I’m Thomas Fox for Cambridge
Credit Counseling.

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