I have observed an almost horny obession with FICO scores on this board. In many ways, it appears that many posters buy into the loan industry's imaginary obsession with FICO scores. One year barely past Chapter 7 BK discharge, I humbly offer the opinion that lots of things are FAR FAR important in getting good interest rates than FICO scores. If people on these boards exerted half as much energy being innovative and persistent in improving their loan rates in other easily accessible ways, they would actually help themselves more and quicker. I humbly offer my own experience in the one year since Chapter 7 discharge. I have learned a lot from these boards about improving my scores, but I have learned even MORE about taking chances and being super aggressive and persistent with car dealers and credit unions and retailers. Especially car dealers right now. With the land-office bonanza of employee pricing, rebates and low captive finance company interest rates, one would have to be almost insane to buy a used car (especially if you have "bad" credit), or to accept high interest rates, regardless of your credit "score." You can pretty well dictate the terms you will accept from any of the three American automakers. Tell them what you expect from your tradein and tell them what interest rate you will accept. Credit scores are almost irrevelent at this point in history. I bought two brand new cars in June, two months BEFORE my one-year anniversary on a Chapter 7 bankruptcy, and got .9 percent (not 9 percent) on one and 5.9 percent on the other, with huge rebates on both. At that point in time, my scores were hovering in the low to sub-600 range. I learned to say "no" to the first rates that were offered (both in double digits). I only wish that I had waited a few more months until now......when the car commercials are getting almost feverishly desperate in tone. My one-year Chapter 7 discharge anniversary date was August 20, 2005. My first two car loans post-BK through credit unions were not FICO score driven in setting the interest rates, but Fresh BK driven. Here are the rates on my frenetic wheeling and dealing with credit unions: 2003 Mazda 4x4 pickup 10 percent; 1992 Mazda Miata 8 percent; Toyota Motorhome (signature loan because of age of vehicle) 10 percent. This is a motorhome I purchased for $4,400 when cosmetically superior ones are going for around $7,000 on ebay. I could have gotten 8 percent on the newer ones, but I can make this one beautiful for about $200 and some "sweat" equity. Consequently, Credit Unions have lost a MASSIVE share of their loan market because of the insanely low interest rates, rebates and pricing offered by the Big Three automakers. They are practically DESPERATE to offer loans. They will PUSH loans on you. They could give a rat's ass about your credit score and your recent BK. I was just approved for a low-doc no-closing cost 6.5 percent home refinancing on an in-house non-conforming mortgage by a credit union with a 666 Experian score. I was rejected for FHA financing because of the recent BK, and now I am glad I was. An FHA loan has about $3,500 in closing costs that would have been rolled into that refinancing - that is money that would have just been wasted - to get 5.9 percent financing. Look, the one-percentage point difference in interest over two years (when I will almost certainly qualify for FannieMae/FHA financing if I want) does not even come CLOSE to equalling the $3,500 FHA closing costs on the loan the size of what I am getting. So my payments are at most $25 or $30 per month more ..... over two years that is about $700 more it will take 10 years for the FHA loan to catch up. These figures are assuming a 15 year loan with biweekly payments. If I were to take the $3,500 saved on closing costs and buy stocks or bonds with it, the FHA loan would NEVER catch up in savings. Neither the FHA broker or the credit union seemed to care about the low FICO scores. They were a complete non-issue. The only advantage of an FHA loan over the credit union loan was the 100 percent LTV on the FHA versus the 80 percent on the CU loan. I look at it as God's way of enforcing financial responsibility on me. I bought the house with owner-financing two months prior to filing BK at 7 percent at $133,000 for two years. I now owe $121,000, it just appraised at $154,000. So I can "only" take out $3,000 in equity with this CU loan instead of $20,000 on the FHA (after FHA costs are deducted). Guess what? It will force me to be more merciless in negotiating the price on central airconditioning and automatic sprinklers, probably to my benefit. I will be a better person as a result and will have a solid provable $20,000 in equity in a home purchased just before filing Chapter 7, during and after the discharge. People with "good" credit aren't doing a whole lot better than that! Possibly the only place where interest rates are determined by FICO score is with credit cards. I have accepted the fact that I am doomed with sub-prime credit cards until at least 5 years after discharge. Its not my FICO scores that get me denied.....it is the too-fresh BK. But like I care what interest rates are on the cards. I have vowed that I will pay them off in full every single month, and have consistently done so. I could have FICO scores of 750 and I wouldn't qualify for anything but sub-prime loan shark rates, because most of the traditional CC companies require five years post BK. The only exception is the VISAs I have qualified for from two CU's - which again, are not FICO score driven. They are both 9 percent. I dont list these accomplishments to brag (it ain't bragging if you can do it, as we say around here) but to illustrate what a miniscule role low FICO scores are in determining interest rates, that is, if you are willing to be innovative and persistent with the right lenders at the right time. And this is a damned good time to be that way!
Yeah, as I related on another thread, I was horrified when I discovered that some jerk car dealer saddled him with a 16.99 percent car loan when my dad's FICO score is well in excess of 750. (that's exactly 16 points HIGHER than what I paid this summer with my score hovering in the low and sub 600 range!) I'd like to kill the finance manager that did that to him. My dad is the kind of stubborn old codger who won't listen to anyone. He went in there and told them what his monthly payment could be so the dealer promptly obliged by giving him that precise payment. Telling a car dealer or mortgage broker your preferred monthly payment amount you can afford is basically an invitation to bend over and take it. Situations like my dad created, and today's situation where car companies are touting employee pricing and zero finance rates are ones where credit scores are all but irrelevent. My bankruptcy harshly forced me to involuntarily accept the above wisdom and what I have been touting as this site's over-obsession with Credit scoring. High credit scores certainly are something to brag about, but a person with far humbler scores and attitude and greater determination can achieve miracles. I cannot believe my story is isolated.
As the creme-le'-creme of my argument against this site's obsession with credit scores, I offer the Mortgage Brokerage Industry's main high-FICO score-negating tool as exhibit "A" in my diatribe: The "Yield Spread Premium" found on many of today's mortages. This horrifying evil little example of naked theft and treacherous averice works like this: The Mortgage Broker is given a monetary kickback, often in the thousands of dollars, for getting the homebuyer to agree to pay a higher interest rate than what would be otherwise supportable by their credit scores. In other words, a cunning Mortgage Broker convinces a homebuyer to accept say an 8 percent interest rate when their FICO scores would indicate a very very low risk and the normal market rate for their mortgage would be say 5.5 percent. By pulling this ingenious slate of hand, the Broker walks away from the transaction with far more money in his pocket than normal. The bewildered homebuyer does not know what hit him. Imagine what just the $3,000 "Yield Spread Premium" amortised over 30 years would cost at the higher interest rate? This is clearly an instance where people with high credit scores are getting soaked, but it is not the only one. A google search reveals that car dealers also rely on such nefarious kickbacks from lending institutions as one of their main "profit centers." They get a fixed "finders fee" the amount of which depends on how high they can jack up the interest rate over what is supportable by the car buyer's credit score. I am sure that these are not the only examples of High FICO scores leading to a consumer hosing out there, just two of the most glaring. I am doing some research on why FHA loans carry such outrageous closing costs.......More anon.
At least the mortgage broker legally has to disclose both the fee, and the FICO scores actually pulled. The courts, HUD, and the real estate industry are still arguing over whether other inflated junk fees paid thru the title company, over and above actual costs, possibly obtained in concert with kickbacks to the real estate agent, even need to be disclosed.
Well Larry, I have to counter some of your statements. You are entirely right about what can be accomplished through basically doing your homework, and being an educated and strong negotiator. Also, please let me commend you on all of your accomplishments with a 1 year old BK. But...there are two other elements here. 1) Your scenario, and accomplishments are applicable only in economic times like the ones we are in now. When they change, and they definitely will, credit scores will become more important in securing decent terms on borrowing. 2) Your overlooking a key element of the "obsession", it is NOT the score people are obsessed with, it is the IMPROVEMENT. The improvement is also NOT just in their credit reports, it's in how they feel and look at themselves. Let's be realistic here, your credit report is basically viewed as an indication of the "kind of person" you are. We all know what I'm talking about here. Hence, an improved score is an "improved you", and I argue that therein lies the true obsession; changing how you feel about yourself. Again, you are right about what can be done regardless of a lower credit score, but the infamous FICO has other uses, insurance premium determination, employment offers (or not), etc. So a better FICO has benefits beyond costs of borrowing. Your FICO score is a tool, and it should be used wisely, and in conjuction with all the tools you reference (smart negotiating, comparing, etc.). It is all part of good basic FINANCIAL management, not merely credit management. But again, I stress that the obsession is about how people feel about themselves. The best example on these boards are all the questions about when a FICO score is good enough for a "status" credit card, when those cards do not make any financial sense for the people. But, I am the first to admit, my "obsession" was with how I felt about myself. I have a great "comeback story" myself, and I have saved a LOT of money by improving my scores to the "Excellent" ratings. But the greatest part was feeling better about myself as a person, and how I felt more confident when I knew someone would be looking at it! No, "uncomfortable" moments at the bank or car dealer, etc., etc. In summary, I do not think the members "obsession" with their FICO scores is a bad thing, I think it is a good thing. Experience shows the "obsession" wears off, and life goes on, but the exercise they went through moves them up to higher plateaus.
I do not accept that it is right for other people thru their incompetent actions and errors to continue to cost me money due to their erroneous reporting and laziness in correction affecting my other credit and insurance relationships without challenge. I do not accept that one company should wrongfully obtain a competitive advantage by their errors at my expense. My choices are to accept errors as something I can do little about, and likely pay several hundred dollars a year extra on average, or insist that all errors must be corrected and raise the stakes until they are. The latter costs as much in time as the former in money, but it is more satisfying, and since damage tends to accumulate, probably pays in the long run. In addition, continued testing of business relationships allows termination of those who don't deserve my business in favor of those who want it more. Most crap that isn't corrected promptly is systematic and not accidental: i.e. it is likely being done negligently or deliberately to others. That is what failure "to maintain and follow reasonable procedures to assure maximum possible accuracy" is about. Maybe arrogant, but tolerance costs, obsession pays. I'm just as obsessive about paying bills, and checking multiple sources for price on significant purchases.
"1) Your scenario, and accomplishments are applicable only in economic times like the ones we are in now. When they change, and they definitely will, credit scores will become more important in securing decent terms on borrowing." I agree that the times are outstanding for to get outstanding interest rates on virtually every purchase. However, what does that have to do with the infamous Yield Spread Premiums that exact a severe penalty for a borrower with HIGH FICO scores? BTW, I noticed that Mercury was advertising some behemoth SUV on TV last night with prices "lower than last year" not including the generous employee discounts, rebates and 0 percent finance. I challenge one person on this board, REGARDLESS of their FICO scores, to get turned away on a deal like that from any of the Big Three automakers! Go ahead, I DARE you! Get turned down and I will give you $25. I wanna see someone with 500 FICO scores walk away with 5 percent or lower interest rates. Go ahead, I dare you! 2)" Your overlooking a key element of the "obsession", it is NOT the score people are obsessed with, it is the IMPROVEMENT. The improvement is also NOT just in their credit reports, it's in how they feel and look at themselves. Let's be realistic here, your credit report is basically viewed as an indication of the "kind of person" you are. We all know what I'm talking about here. Hence, an improved score is an "improved you", and I argue that therein lies the true obsession; changing how you feel about yourself." Now I agree with this entirely. You are entirely correct about how a person sees themselves. I would add the warning however, that pride leadeth to destruction, which is why it is one of the seven deadly sins. Pre-BK, I allowed my extraordinarily high FICO scores to be used to flatter me into accepting dubious deals with higher than warranted interest rates. I remember once I got instantaneous approval at a car dealer for 13 percent interest and just sucked it in cuz the talented salesman referred to my FICO scores as the veritable "brick." And I paid those horrid Yield Spread Premiums to boot on my first mortgage!!! ("Just leave your checkbooks at home, no money needed at closing cuz of your good credit," soothed the hucksterish mortgage broker)How could I have been so stupid to have accepted such aterrible loans out of sheer vanity and misplaced pride? And when my credit was absolutely stunningly horrible directly before and after the BK, I had to learn a lot of alternate ways of increasing my self-esteem, this time genuinely since it was now based on true humility, rather than humiliation born out of extreme gluttonous vanity. You know what I realized? I realized that REAL self esteem comes from meeting your obligations in a timely manner. I paid off my student loans post BK (starting balance of $33,000) and on that last check, wherein I made the last two payments, I wrote on the outside of the envelope "Free at last....Free at last.....thank God I am free at last!!!!" Now THAT was a tremendous boost in self esteem. (Not to say the least, it also led to a tremendous boost in FICO scores). And my comments in general have been directed at the obsessive Pro-Se lawsuits that folks on this thread are encouraged to file against CR firms and corporations that erroneously report credit entries. I think there is really really bad karma in store with that tactic. Is getting erroneous entries completely erased going to improve your scores more than negotiating peacefully to leave the credit line on the report expecially if it is really old, with the amounts owed corrected? I dont know, but somehow I doubt it.
If the accounts and amounts are legit, that's one thing. You might have an interest in the account history once corrected. If the accounts are misidentified, or paid or settled and being collected on again, "peaceful negotiation" encourages predatory behavior and increased illegal activity. You get the same effect if you tolerate drug dealers on your street corner. It's bad for property values. The law defines what CAs can do to avoid all liability even for mistakes. With that much slack, violations are deliberate decisions made for profit, with the knowledge that most consumers don't know where to begin to obtain redress, and most litigation costs more than the amounts in dispute. Furthermore, sale of old debt clouds liability for errors, and this is institutionalized in Federal law. The OC isn't doing anything to you, they sold it off long ago. The CRA is just reporting what someone else said, and they are exempt from libel. The CA has the right to assume it was correct just because they bought it, whatever "it" was, even if the party they bought from failed to respond to a previous dispute. The debt itself may even have been fraudulent, originating in an identity theft, or a fraudulent transaction by the OC, or it might even be a paid account whose status is confused due to a company bankruptcy or merger, and the secondary market in old debt still places a value on it accepting its legitimacy at face value, even as it is sold for pennys on the dollar. It's market value is in effect based on its nuisance value, and nuisance value can be collected from the wrong party easier than the original debtor. The economic benefit of a credit reporting system in simplifying issuance of credit to a large mobile workforce are undermined by large quantities of old and largely unverifiable debt.
Congratulations on your success with Credit Unions! My experience has been quite different. I quit my credit union because of their score based rates. I had a credit score of 719, and had to pay 1/2 % higher interest rate than the advertised rate for a car loan. A 725+ score was needed for their best rate. It was the only lender that ever penalized me for a credit score. At 719, I thought I was doing well. The credit union taught me that I needed to work for a better number.
