Lenders Should Assess Credit Score Alternatives to Enter New Market- By James Comtois

The credit scoring market is established in terms of product acceptance, loan processing efficiency and decisioning speed. However, lenders are requiring better stratification of consumer credit risk than current scoring provides, according to a new report released by research and consulting firm TowerGroup. More nuanced credit stratification is of particular concern as financial institutions struggle with climbing defaults and losses in the subprime market.

In its report, entitled "What's the Score? New Risks, Credit Scores and Revenue Opportunities in U.S. Consumer Credit Markets," TowerGroup contends that lenders need to evaluate new, improved and custom credit scores to enter new market segments, update underwriting and pricing policies and refine credit risk evaluation to adapt to market conditions. Additionally, vendors of loan origination and servicing products should analyze the impact of changing credit reporting and scoring systems on their systems, processes and lender customers.

Credit scores are crucial input for opening loan accounts and analyzing loan portfolio credit in lending for mortgage and 2nd mortgage purposes. Now lenders need to ask when a superior credit risk prediction justifies the costs of converting to a new credit score, which is an issue largely overlooked from the perspective of scoring vendors was the intense competition for credit score revenues in the consumer-direct customer segment.

Another question for lenders is whether the different credit score ranges, score methodologies and data sources make VantageScore better than the Classic FICO score from Fair Isaac Corporation. However, the report asserts that although VantageScore will have moderate success in the consumer-direct and credit card lending market segments, it will have difficulty among mortgage and 2nd mortgage lenders.

In March 2006, Equifax, Experian and TransUnion introduced the jointly developed VantageScore, a new consumer credit score for lenders and consumers. According to TowerGroup, as of February 2007, although numerous lenders were testing VantageScore, few lenders were using VantageScore to prescreen consumers or to underwrite loans. Consumers are purchasing the credit score through the Internet channel.

In TowerGroup's estimation, the consumer-direct customer segment for credit reporting and scoring products will grow 39% to 2010 from 2001 and is currently a larger growth market than the lender market.

Additionally, to engage in new markets, lenders should analyze the ROI of a new scoring system and include the value of new loans originated to new customer segments, better capabilities for risk prediction and improved loan pricing.

7 steps to fixing your credit report

Put four adults in a room and chances are that one of them will have a credit report with a serious error.

The big three credit bureaus -- Equifax, Experian and TransUnion -- process huge amounts of information. A 1998 study found that 29 percent of the credit reports surveyed had errors that were serious enough to cause consumers to be denied credit.

Usually, consumers find out about errors in their credit reports after they're denied credit. To fix mistakes in your credit report, here's what to do:

  • Prepare for legal battle.
  • Write it down as it happens.
  • Act businesslike.
  • Know who to contact.
  • Mail it.
  • Confirm it.
  • Apply other tactics.
  • Prepare for legal battle
  • Psyche yourself into the proper frame of mind -- a litigious one. Don't file a lawsuit right off the bat, but everything you do should be done with the aim of impressing a judge and jury if your mess gets that far.

It probably won't get that far. But you never know what it will take to clear up your credit record. In most cases, a phone call or two will do. Or you could end up in a multiyear ordeal ending up in federal court. In modern America, your credit report is your reputation, and there's nothing wrong with going to court to clear your name.

Because you don't know how far this dispute will take you, act as if your first effort to correct an inaccuracy is the first salvo in a legal war. That means you should document everything as it happens, and always act businesslike.

Write it down as it happens

Keep copious, detailed records as events unfold. That will impress a courtroom. Even if you don't sue, you can wield your meticulous record-keeping as a weapon ("Well, Mr. Smith, I talked with Jane Doe in the customer-service department, Work Team 97, at 2:55 p.m. on April 25, and she said ... ").

If you can show that you wrote your records as events occurred, they will be considered more trustworthy.

"Keep track of it in a phone log, in a daybook or a diary," says Denise Richardson, a consumer advocate who fields hundreds of e-mail from victims of inaccurate credit reporting and has lobbied members of Congress. "It doesn't stop inaccurate credit reporting, but it's allowed in court if it has to go that far. It's a record that's taken at the time things are happening, and a court won't call it hearsay."

In other words, if you wait a few weeks and then write down an account of the calls you made and letters you sent as you can best remember, a court might weigh that evidence as if it were hearsay -- a rumor, basically.

Imagine suing a company for fouling up your credit record because of faulty record-keeping. Then imagine describing to a jury the tiniest details of every phone call and letter you sent and received as part of the dispute, while your adversary fumbles around with incomplete documentation. Smells like victory.

Act businesslike

"Resist the temptation to scream and yell and do things that would not look good in court," says Greg Fisher, a self-described "new breed of rogue Internet journalist" who runs The Credit Scoring Site and the related creditaccuracy.com.

Fisher says that you don't want your opponent to testify that you were belligerent. "'The consumer was incorrigible' -- which I think is the term they use," Fisher says.

Remember: You never know if your problem is going to become so intractable that you have to file a lawsuit, so from the get-go, everything you do has to look good to a judge and jury.


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