Credit/Debt Recovery

Mojo Radio 640

I just completed an interview with Ross MacDonald on Mojo Radio in Toronto, Canada.

It was a great interview; I was on for a full 45 mintues, and we got many plugs in for the book, Repair Your Credit And Knock Out Your Debt.

It was a faster-paced, more energetic interview than I've had before. My last interview with Chuck Jaffe was much more talk-radio style, while Mojo Radio ("Talk Radio for Guys.") was more like a sports talk show.

I hope many of their listeners go out and find the book, since we didn't have time for really deep answers to the listeners' questions. (All the anwers are in the book, though!)

And of course, we had to plug Springboard, my beloved CCCS in Southern California.

Curiouser and Curiouser

In response to my credit score problem, Craig Watts of Fair, Isaac Co. says:

"For a FICO score to be calculated three conditions have to be present in the person’s credit file. It has to contain at least one account that is 6 months old or older. It has to contain information (updates) provided by a creditor within the previous 6 months. And the file can’t contain any “deceased” indicators. What Jeff is apparently referring to is the second criteria I’ve listed. However, it doesn’t matter if there is no activity so long as a creditor continues to report to the credit bureau on an account in the file. In other words, Macy’s may continue to tell the CB each month that the card account held by me still has a zero balance. So long as Macy’s is updating its information, my file would satisfy the second criteria even if that were the only account I’ve ever had open. As some point creditors will stop reporting updates to the CB on an an inactive account, but that decision is up to each creditor."

Big thanks to Craig and Fair, Isaac for being so responsive and helpful.

But....

I called MBNA, and three different people there swore that they DO report updates every six months. In fact, I'm looking at my (Kroll Residential Merged) credit report right now, and it says "MBNA America Reported 07/04," but down where it says "Credit score information" it just has "N/A" with each of the three credit bureaus.
Experian says "Risk score not available due to model exclusion criteria."
TransUnion says "File not scored because subject does not have sufficient credit."
Equifax says "Beacon not available, no recently reported account information."

Well, according to MBNA, they did recently report my account as paid in full, no lates, no balance, etc.
There is at least one account at least 6 months old (21 months old to be precise).
And I'm not deceased.
So where's my score?
The folks at MBNA suggested that the problem was at the credit bureau level, but all three of the credit bureaus have no score... could they all be making the same mistake? Doubtful.
Fair, Isaac tells us it's up to the creditor to keep reporting the account, but MBNA swears they're doing just that. So is the problem with FICO?

On the surface, it seems the lack of score stems from something at the FICO level, but my hunch is there's actually some problem with the way MBNA is reporting the account. At any rate, they're not going to change anything, so it's moot. I have to use alternative credit and go through FHA.

Advice to COB readers: if you're trying to build credit, don't make MBNA your first account. Start with a Macy's card. I know from people I've counseled that they keep reporting an account for YEARS, even if you never use it. Maybe that's why Craig picked it as an example in his response above.

I'll keep you posted on how this develops, and I'll be back to bash the Consumers for Responsible Credit Solutions soon!

FICO chapter 15, verse 11

My adventures in trying to become a homeowner have gotten me thinking. While any negative stuff on my credit report would stay on there and affect me for seven years, the positive stuff disappears after a year. (Actually, I've already heard from someone who lost their credit rating after six months of inactivity.)

Ever wonder where that seven year limit comes from?

Deuteronomy 15:1-2:

At the end of every seven years thou shalt make a release.
And this is the manner of the release: Every Creditor that lendeth ought to unto his neighbour shall release it; he shall no exact it of his neighbour, or of his brother...

Makes you wonder. Are negative items purged after 7 years because of ancient Jewish laws?

Of course, the Book has a few things to say on the subject of usury that seem to be ignored by everyone these days, so I'm not going to read too much into this. (Wow, not reading too much into the Bible... tall order.)

Questions to Ask Your Credit Counselor

More on the Consumers for Responsible Credit Solutions.

They posted on their web site a list of "Important Questions You Should Ask When Choosing A Credit Counseling Agency."

I've decided to compare that to Springboard's "Five Questions You Should Ask Your Credit Counseling Agency."

Springboard #1: Is your agency accredited?
As in, Council on Accreditation, a certification that CRCS's parent organizations could never achieve. (They could come forward and prove me wrong, but that will never happen.) COA accreditation is rigorous, and it's nearly unique to NFCC member agencies in the credit counseling world.

Of course, the CRCS doesn't make a single mention of accreditation.

CRCS #1 Are you customer focused--relying on customer satisfaction to stay in business or are you funded mostly by credit card companies and big banks?
What they really mean is "Where do you get your money--by charging huge fees to your clients, or fair share contributions from creditors?" That's the big red herring here. They attack NFCC non-profits for receiving (ever declining) contributions from the creditors. As though that marked some sort of ethical failing. But what they advocate (without saying it directly) are huge fees to be charged from the client... ask yourself, if you were in need of credit counseling, would you rather have the counseling paid for primarily by your creditor or yourself?

Springboard #2: What fees do you charge?
Aha. A question the CRCS doesn't want you to ask. Because NFCC charge modest fees (in accordance with the law) and they only take from the client what they must to get by. They'd rather see the "credit card companies and big banks" pay for the counseling because they can afford it, and it's better for the consumer that way.

CRCS #2: Do your board members work for credit card companies, banks or other creditors?
I don't know the specifics, but NFCC member agencies are required to have a minority of board members who are actually creditors. (I'm unclear on this, but I think they can have a maximum of 40% of the board made up of creditors.) The rest of the board would be local members of the business community, journalists, college professors, etc.
But the entire question is bull$*!%. The distinction they're not mentioning here is that non-profit agencies' board members are volunteers. Yeah. They don't make a dime, and they time they devote to helping COA accredited Non-Profit NFCC member agencies is a donation. Ameridebt board members? Volunteers. Don't make me laugh.

Springboard #3: Does your agency have any local branches I can go to for help?
Old-fashioned thinking dictates that face to face counseling is better than the alternatives, and it should be made available. The other important thing about this is that we have nothing to hide. In our non-profit world, you can always find us and are welcome at our headquarters. The NFCC's been around since the 50's. They're not going anywhere. The kind of profiteering fly-by-nights that the CRCS advocates have a habit of disappearing overnight.

CRCS #3: Does your agency follow the rules of any national organization with executives from credit card companies, banks or other creditors?
Huh? They're slamming the NFCC here, and Susan Keating in particular. It's stupid. By the way, have you noticed Springboard's questions are brief and to the point, while the CRCS's are long-winded and loaded?

Springboard #4: Does your agency provide any local education programs or support for me while I'm on a Debt Management Plan?
Like the face-to-face seminars I used to teach, and the availability of a counselor if you need budgeting help or additional counseling? When I was with Springboard I volunteered my time to speak at colleges and for local groups, and we had 6 or 7 free educational seminars a month in Southern California.
And for the folks who didn't live in SoCal, we offered Credit When Credit Is Due.

CRCS #4: Can I "do business" over the phone or must I suffer the embarrassment and inconvenience of appearing "in person?"
What a loaded question. For the record, the NFCC agencies I'm aware of (yes, including Springboard) offer counseling by phone and by internet. This question is merely to disguise the fact that the CRCS agencies don't want to offer face-to-face counseling; they're DMP mills who want to give quickie 20-minute counseling sessions by phone. "Responsible Credit Solutions" my a$$.

Springboard #5: Will your debt repayment program handle all of my debts?
NFCC agencies work with all creditors, even those who don't contribute to them. (Imagine that, a big greedy bank that doesn't feed its pet counseling agency.) Non-profits will help with every account because there's no profit motive beyond staying afloat. There's no for-profit agency waiting in the wings to cash in on their clients. Not with reputable NFCC members, anyway.

CRCS#5: Do you keep regular, convenient business hours?
Of course. Who doesn't?

CRCS#6: Are customers frequently on hold or do you offer an IVR system?
I think this stems from the nonsense Consumer Reports article back in 2000 that suggested NFCC agencies were technologically behind the times.

CRCS #7: Can I access services from you over the Internet?
Every agency I know of offers Internet services.

CRCS #8: What kind of education services do you offer? Are they user-friendly and easy to access?
In the text under this question, they say "If an agency claims to offer education services, verify that they don't require you to appear in their office in person in order to use these essential tools. After all, what business in this day and age can afford to refuse to serve their customers either over the phone or on the web?"
Oh, please. Credit When Credit Is Due is the hottest thing going in education among NFCC agencies, and it can be completed by self-study, via the internet, or in face-to-face workshops. Let me turn this question around on these jacka$$e$.

If an agency claims to offer education services, verify that they offer both face-to-face educational workshops and self-study and internet programs.
Because you will not find a single professional educator anywhere, ever, who will tell you that face-to-face education isn't vastly superior to self-study.

What a bunch of loaded bull$&!% questions. Meaningless, every one of them. Stick with the NFCC, folks.

"Nonprofits in service to one of America's most profitable industries"

Okay, I've read the Consumers for Responsible Credit Solutions white paper, the one I mentioned yesterday. It's called "Nonprofits In Service To One of America's Most Profitable Industries."

My biggest problem with this thing is not in the specifics (though there are some problems there), it's at the root of it--the theme of this paper is "for-profit credit counseling is better than non-profit."

Sure, the NFCC is their primary target; that's because the NFCC is the largest concentration of non-profit credit counselors with good reputations. The CRCS represents a dozen unnamed for-profit credit counselors, and we know they're associated with the carcass of Ameridebt. They have to take down the NFCC, because the NFCC is the main thing standing between them and their profiteering.

The NFCC and the legitimate credit counseling industry have their problems. But the solution isn't more profiteers like Ameridebt.

What I'm talking about here is a central philosophical difference. I'll keep saying it until I'm blue in the face: legitimate credit counselors don't take sides. That's not our job. It's not "counselor and client against the creditors," as the CRCS suggests it would be, and it's not "creditor and counselors against the consumer," as the CRCS accuses the NFCC of being.

Legitimate non-profit credit counselors strive to create win-win situations where everybody gets the best possible outcome. The client has debt relief, counseling, and budgeting help. The creditor collects on accounts that were in trouble, and the credit counselor receives funding to keep helping consumers (and put braces on their kids' teeth). Credit counselors should never take the posture that the CRCS suggests in their white paper.

What they seem to want is an "us vs. them" mentality where the creditor is always cast as the bad guy. That wouldn't work today for several reasons:

1. The creditors participate in credit counseling voluntarily. They don't have to do anything to help their clients who are in trouble. If we were to treat them like the villain, they'd just raise our clients' interest rates back up, reinstate their fees, and stop making fair share contributions to us. We'd be gone.

2. In the CRCS world, the counselor is the bad guy. They want a world of Ameridebts and NCC's, where the fees charged to the client are so large that it doesn't matter if the creditor contributes fair share. More on that tomorrow.

3. The CRCS really wants federal legislation to mandate that creditors cooperate with counselors. That's because it's the only way the creditors WILL cooperate in the CRCS's world. Does anyone think forcing creditor compliance is a good idea? (Okay, yeah. Socialists.)

The most insulting thing is the constant "Creditors are rich fat-cats" refrain in the white paper. It's even suggested in the title: "...most profitable industries..."

As though the people at the CRCS aren't highly-paid Washington lobbyists in league with a bunch of crooked millionaires. As though the hard-working people at non-profit NFCC agencies aren't doing a public service for a modest wage (see my last few tax returns for proof of that). It galls me, frankly, that a cabal of businessmen desperate to increase their profits and dodge the legal scrutiny they're under would perform a hatchet job on a legitimate non-profit organization. And lots of media outlets picked it up and ran with it, and lots of dumb-as-a-stump politicians will swallow it wholesale.

Wrong, wrong, wrong.

Anti-NFCC Report Making Waves

About a week ago, a new group called "Consumers for Responsible Credit Solutions" issued an 80-page report that sharply criticizes traditional non-profit credit counseling. They lash out at the NFCC in particular, basically protraying the entire organization of counseling services as puppets of the creditors. (It's an old line, and one that I deal with in Repair Your Credit And Knock Out Your Debt.)

The CRCS web site has a place to download a .pdf copy of the report (all 78 pages). Look on the right hand side where it says "Special Report."

I admit I haven't gotten through the whole thing; I'll bring you more reactions as I get further into it. So far, I think they've made a lot of excellent points but have also made a few fundamental misunderstandings of the non-profit CCCS world.

And, of course, there's yesterday's report about the Consumers for Responsible Credit Solutions that came out in yesterday's Baltimore Sun (I'd link straight to the article, but the Sun has an idiotic registration system). The Sun tells us that CRCS was created by the Ballenger Group, a for-profit company with ties to a dozen credit-counseling agencies and their own Washington lobbyists.

This explains a lot about the report actually; now that I know who wrote the thing, I'll have a better idea of what they're getting at as I read the report.

One initial reaction: the Ballenger group was created by vultures circling Ameridebt's corpse. They even used some of the carcass pickings to put together the new group. One aim of the Responsible Credit report seems to be to drag reputable cccs agencies down into the muck with Ameridebt and their ilk. COB readers will know how I feel about that.

I'll be reading the report and bringing you my reactions, but my gut feeling at this point is in line with what CFA director Travis Plunkett said: this is an "unwarrented hatchet job" on the NFCC, and "overall, consumer groups consider the NFCC a credible trade association made up of agencies that by-and-large try to provide quality credit counesling to consumers at the lowest possible charge."

(An amazing quote: I've long considered the CFA an enemy of credit counseling, but Plunkett clearly sees this new CRCS group as a greater threat than the NFCC.)

Stay tuned for more on this big story!

The Incredible Vanishing Credit Score...

I had a huge shock yesterday when I visited a mortgage broker to apply for a home loan. Apparently, if neglected, credit scores can vanish completely. I don't mean shrink; the score didn't go down. It went away altogether.

Let me back up and give you some history. For years now I've been preaching the benefits of saving, using credit wisely, living on a budget. The saving part was hard, but I practiced what I preached, and built up a nice down-payment fund.

As far as using credit goes, I was in a unique situation. I had never borrowed a dime in my adult life. I never had a credit card, never took out a student loan (thank you work-study and teaching assistantships), and I always bought my vehicles outright with cash.

I got that from my dad... my whole life, I never saw him swipe a credit card or write a check. He was a cash-only kind of guy.

Of course, when I applied for a mortgage a couple of years ago, I learned that having NO credit score was as bad as having a LOW credit score. They laughed me out of the loan office.

So, I went out and did what I advise in Repair Your Credit And Knock Out Your Debt. I had been saving up to buy a new computer, but rather than just pay for it outright, I got a loan to buy the computer (and it wasn't easy to get, given my lack of credit history. I ended up paying something like 26% interest).

Now I know that it takes six months to build a credit history, so I couldn't just pay the thing off in one payment. Instead I paid 1/6th of the balance every month and had it paid off in 6 or seven months. Voila! Credit history (and score) established.

Okay, fast forward a year. I checked my own credit report a few months ago (as I advise in my book) to make sure there were no surprises before I applied for a mortgage this time around. Everything looked good, the score was more than high enough.

So yesterday, when the mortgage broker pulled my credit, what did she find? No score.

We were all baffled. Here were a broker with 20 years of experience, and a published author in the credit/debt industry, and we'd never seen anything like it. How does a credit score disappear?

We called the credit burea, and were shocked to learn that if there's no credit activity for twelve months, the score goes away. I didn't know that! I thought I'd done everything right; I still had an open credit account with a high limit, no late payments or negatives of any kind, account paid in full. But because I hadn't used that account (my last payment on the computer was July '03), they took my score away.

Working in the industry as I do, I'm not a big believer in incurring debt and carrying balances. But here I was being punished for it. If I'd taken an extra month or two to pay off the balance, (or applied for a mortgage a few months earlier) that activity would still be there to give me a score.

So now I have to take another six months to establish a score, or I have to use FHA to establish arternative credit (which leaves me with an ARM and a 3% down payment... I was thinking more like 20% down.)

I'm pursuing other options. But let my story be a cautionary tale: when it comes to your credit score, use it or lose it!

YourCreditCardCompanies.com--at long last

It's WAY overdue, but finally the creditors are stepping up their efforts to prevent credit card fraud and ID theft.

www.yourcreditcardcompanies.com is a joint effort of Citibank, Mastercard, MBNA, Discover, Capital One, and Chase Manhattan. They're going to be launching major ad campaigns to help people protect their identity and credit accounts from criminals.

It's about time. Who knows how much these six entities have lost to identity thieves over the last decade? Millions? Billions? (Answer: depends on how you look at it... they haven't really lost a dime; they've passed that enormous cost on to us in the form of increased fees and interest, and new tricks like Universal Default.)

News-Leader on Credit Card Fees

This article from the Springfield News-Leader (that's Springfield, MO, my former hometown... we called it the "Springfield Mis-Leader") discusses rising credit card fees.

They're getting a lot of their info from CardWeb.com, which is a good place to visit if you're so inclined.

The article, originally from USA Today, does a good job of spelling out the traps the credit card companies have laid for their customers (but doesn't mention Universal Default, a phenomenon blogged here at CoB and virtually nowhere else). Read it and become wise!

Edwards on BK Reform

Now that John Kerry has chosen a running mate, I've gone back to see what his position on bankruptcy reform is.

We know from earlier research that Kerry has voted both for and against bankruptcy reform, but he's currently against it.

Edwards, it seems, voted for bankruptcy reform both times, as did the other democratic nominees for president. Kerry was the only candidate to change his vote. (In all, 15 senators reversed their position and voted against BK reform the second time. On the first vote, only the late Senator Paul Wellstone voted against the bill.)