I've always been told to highly value my credit score. It's one of those important metric that if not valued highly enough can really screw you down the line. I have noticed recently that I've started getting the 0% balance transfer offers in the mail and for some reason every time I go into the bank they seem to want to extend a credit card or some type of credit at me. Now, I've read an article about a new credit scoring system that more borrowers less risky than the old scoring system.
Now, I am a huge fan of greater transperancy in regards to credit scores as I still have no idea exactly how they work. Someone here is probably far better versed than I am and can speak to that. This however seems promising as it combines more data from outside sources to try and create a more complete picture of the borrower.
On July 10 the companies launched a new credit score that combines the data that credit bureaus typically track, such as mortgages and credit cards, with outside data CoreLogic mined from public records, like property records and liens, and from its proprietary sources, such as short-term installment loans for used cars and rental information. “By having that added visibility, we are able to get a more precise score and picture of the borrower,” says Tim Grace, vice president of CoreLogic, based in Santa Ana, Calif.
Overall, 70% of people will have better credit using the new score. Wonderful. I for one am not a fan of a preponderance of easy and cheap credit. I'm not saying this will directly lead to riskier people getting more loans, but it seems that the appetite for riskier lending is coming back in the face of margin squeezes on banks. Those two things together seem like we are destined for a repeat of before.
What do you guys think regarding credit scores? Is the system in need of a dire overhaul, should more people be able to get credit? Is credit addiction here to stay?
The reason neither you nor anyone knows exactly how credit scores are calculated is because it is based on the proprietary formulas and algorithms of the credit bureaus (Equifax, Experian, and TransUnion). Transparency, whenever possible, is preferred, but the last thing we need is more consumer credit.
Think of a credit score revamp like inflation--if 70% of people have better scores as a result then lenders will increase their credit score requirements. Nobody will be better off as a result of an improved score if it's across the board.
haha good point. It might not be increases across the board though - it might just be incorporation of more information (some peoples scores go up, others go down)
Analysts don't see credit scores as the end all be all when considering suggesting extension of credit. If the guarantor/borrower has a lower credit score, but can provide reasoning for derogatory marks then little weight is put on the score. What truly matters is that the guarantor/borrower shows consistent ability to service both existing and proposed debt. So if someone has say a 600 beacon score but shows 1.50x DSC for the past 3 years based on tax returns, chances are the loan will get approved as long as their isn't paper trail of guarantor/borrower constantly screwing over those that extend credit.
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