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     | Monday, February 19, 2001 - 10:41 pm  This is an article from the Dallas Morning News "In the past, consumers found that credit counseling meant a black mark on their credit reports. But in a recent major move, the company that pioneered the use of credit scores by lenders says it no longer will give consumers demerits if they've been through credit counseling. Craig Watts, spokesman for Fair, Isaac and Co. Inc., said seeking out credit counseling was usually an indicator that someone was in trouble financially. It would "lower your score slightly because statistically, it was demonstrated that having sought credit counseling increased the risk that someone in the future would default on their credit obligation." Watts said. But Fair Isaac, whose scores are used by many lenders, now believes that credit counseling isn't necessarily a negative indicator of a consumer's future ability to pay bills on time. And it might even be a hint that consumers are trying to manage their debt. A credit score is a snapshot of a consumer's credit risk picture at a particular point in time. Lenders use the score to determine how likely consumers in a specific score range are to repay their debts. Bettye Banks, senior vice president of education at Consumer Credit Counseling Service of Greater Dallas, said it's about time the credit industry understood the value of credit counseling. "This is a major significant change and much, much, much benefit to the people who have bitten the bullet and who've said, "I won't spend too much and I will pay my debts and I should get a benefit for that," she said. "When you have a dedicated consumer, one who has recognized a problem and has taken steps to fix it, why should they be penalized for that?" Banks said she's "really ecstatic" about Fair Isaac's decision. However, consumers shouldn't assume that they're home free. Individual lenders can still view credit counseling as negative. "We certainly don't rule the roost when it comes to how different lenders view characteristics on a credit file," Watts said. Consumers should keep a tight rein on the finances so they don't need credit counseling, Banks said." What a scam, I say!!!!
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| | Monday, February 19, 2001 - 11:19 pm I tried to edit this but didn't get to it in time. Anyway, here is a link to a Fair Isaac article about Fair Isaac giving seminars to credit couselors I think it is interesting that these two companies would get into bed together.
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| | Tuesday, February 20, 2001 - 05:34 am I remember reading somewhere here that lenders who see credit counseling on a credit report often don't even consider the application. That might not have anything to do with the score. Maybe they figure people who are in credit counseling might file bankruptcy soon...
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| | Tuesday, February 20, 2001 - 06:41 am When I joined CCCS a few years ago, I had to agree to get their permission first before incurring any new credit obligations (vehicle loans, credit cards, mortgages, etc.). I had heard from a couple lenders and car dealers (was looking for a vehicle at the time) that they won't touch anyone who is in credit counseling AT ALL. How'd they think I was going to get to work to make money to pay the bills? WALK 40 miles each way every day? Needless to say, I quit CCCS and went back to paying my bills (some of them, anyway) on my own and joined a credit union and got a loan for a vehicle.
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| | Wednesday, February 21, 2001 - 07:17 pm It's interesting to see Fair Isaac making this change. HOWEVER, what about the late payments often reported by the creditors. Since the payments are often less than the pre CCCS minimums required, many creditors report late payments. Will those derogs also be ignored for credit scores?
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| | Wednesday, February 21, 2001 - 09:52 pm Exactly!!!! They report you as slow pay and/or delinquent. I've seen it. However now those poor unsuspecting fools can walk into CCCS and be told that, per FICO, it doesn't negatively effect their score. Do you know if there ever was such a notation that you are in debt counseling service (or whatever they call it) and does that in fact ding you on your score (is there a risk factor for that?)
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| | Thursday, February 22, 2001 - 12:02 pm Yes, there are "debt (or credit) counseling" notations, reported by the CREDITORS. I don't know IF or how that impacted on the scores, according to the article it would "lower your score slightly ..." Just looked again at the codes at http://www.bayhouse.com/FairIsaac-FICO-risk-factors.shtml but don't see a specific code. Does anyone know which code was applied?
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| | Thursday, February 22, 2001 - 01:13 pm (19) Too few accounts currently paid as agreed.
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| | Thursday, February 22, 2001 - 02:15 pm Do you know that for sure? You could be having 25 good accounts and just one with the "counseling" notation.
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| | Friday, February 23, 2001 - 08:14 am Please remember that FICO scores are emperically derived and statistically validated. They aren't judgemental scores where a group of 'big heads' sit around and try to consider what is and isn't negative and how much negative or positive each thing should be. FICO scores were derived by getting thousands of people's credit profiles 24 months ago and currently. Then they would look at the profiles 24 months ago, in a statistical way, and try to determine what factors lead to serious derogatories in the next 24 months. For example at one point their statisticians would say, "I wonder if a person who has balances 80% or more on their credit cards is more likely to be delinquent in the future than someone who owes 20%" after reports and studies were done they concluded yes. Viewed in that light the entire above article has a wrong perspective and gives the wrong impression. The article says: Fair Isaac eases up on CCCS notations. The impression is that some bigwig at Fair Isaac woke up one day and said, "It's not right for us to punish those people who chose CCCS. Let's adjust our score accordingly." In reality it's more like statistical studies were done and there is no statistically significant relationship between CCCS and future delinquencies.
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| | Friday, February 23, 2001 - 09:16 am Shylock wrote: "The article says: Fair Isaac eases up on CCCS notations. The impression is that some bigwig at Fair Isaac woke up one day and said, 'It's not right for us to punish those people who chose CCCS. Let's adjust our score accordingly.'" I think that is exactly what happened. The people who buy FICO scores (the lenders) probably like CCCS since many people who are faced with CCCS have only one other choice: bankruptcy. It makes sense that Fair, Isaac would sacrifice a predictor if it wants to encourage a certain kind of consumer behavior. I'd like to see the studies that now all of a sudden show that CCCS isn't a predictor of delinquencies (and the studies in the past that showed CCCS is). Comparison shopping ought to be encouraged rather than penalized so I'm hopeful that inquiries will one day be discarded as a predictor in Fair, Isaac's model. Seeing as the consumers are soon going to be able to purchase FICO scores, Fair Isaac may finally have some incentive to stop penalizing smart consumer behavior. Although it probably won't happen until Fair, Isaac values the business it receives from consumers (who would like this) over the business it receives from the lenders (who don't like comparison shopping).
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| | Friday, February 23, 2001 - 09:17 am Of course there IS a statistically validated relationship between CCCS and future delinquencies. That's not to say that everybody will default, but I've seen many people file for bankruptcy after paying the CCCS for a while. Debt counseling certainly is a MUCH greater indicator of financial problems than 5 inquiries or having a creditor report the account to the CRAs a week late. I believe the Fair Isaac clients, the finance companies and banks, urged Fair Isaac to make a publicity statement to encourage consumers to go with the CCCS instead of discharging their debts. The timing is perfect, they're trying to get as many people as possible into counseling programs prior to the bankruptcy reform. There was no risk factor for credit counseling. Maybe it NEVER was a factored into the scores at all. Think about it. People look for help with their credit obligations because they have too many accounts and too many payments. Often they're maxed out, have been paying the bills with cash advances, etc. Their credit scores often are LOW because of balance/limit ratio, number of (new) accounts, finance company accounts, inquiries, etc. Then they go into credit counseling, they get a combined payment, some interest reductions, and lower payments are made. That's when the late payments are often reported by the creditors, and the credit scores really go down. The problem I have with that is that all the other factors lowering the scores can be completely eliminated in a short time (several months) while those late payments stay there for 7 years. That's my take on this. Same deal as with the inquiries. Many people STILL think that they can go car and mortgage shopping and have all their inquiries combined into one. It's not true, but the propaganda works ...
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| | Friday, February 23, 2001 - 09:36 am Ok, Erik, you beat me by a MINUTE! Just want to add for readers new to this topic that the "non profit" CCCS was established and is FINANCED by the creditors.
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| | Friday, February 23, 2001 - 07:19 pm Did you read that article? Really? It would "lower your score slightly because statistically, it was demonstrated that having sought credit counseling increased the risk that someone in the future would default on their credit obligation." Watts said. (emphasis added) New statistical research has moved that from a slight decrease to no decrease. Note, however, that we've long known that filing bankruptcy substantially improves a person's score and is a much better route to go than CCCS. However the rest of the article is quotes by CCCS spinning Fair Isaac's results to try to make them seem to mean something they don't.
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| | Friday, February 23, 2001 - 08:54 pm You bet I read the article. And I wrote: "There was no risk factor for credit counseling. Maybe it NEVER was a factored into the scores at all. Think about it. People look for help with their credit obligations because they have too many accounts and too many payments. Often they're maxed out, have been paying the bills with cash advances, etc. Their credit scores often are LOW because of balance/limit ratio, number of (new) accounts, finance company accounts, inquiries, etc." HOW were Fair Isaac's scores lowered SLIGHTLY by the counseling notation? Regardless of the actual changes in scoring, the whole thing is a propaganda gig. It has NOTHING to do with statistics. You wrote: In reality it's more like statistical studies were done and there is no statistically significant relationship between CCCS and future delinquencies. Explain to me how that could be. I certainly wouldn't make an unsecured loan to a person who is in a debt counseling program.
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| | Saturday, February 24, 2001 - 12:36 pm It seems to me that most people who are VERY serious in debt skip straight to bankruptcy (especially first-timers) so these borrowers would be the statistically riskiest. The ones on CCCS are held out on a string of false promises and propaganda while creditors are STILL making money through higher rates, fees, etc. etc. on very large balances and maxed out bankcards. They, I surmise, would have a lousy FICO score but would garner HUGE profit/revenue scores because they would be diligent payors thinking that they would have great credit in return for their payments. For these people, FICO's changes might make a difference between 450 or 470 for instance. They may attract the Capital Ones of the world with their 19.8% +++ rates and fees having calculated the inherent risk of loss versus approval with these terms. And, Shylock's observations on scores post BK mesh with this theory, because of "A" mortgage credit potential 2 years down the line. The poor yobs on CCCS would still be slogging through, none the richer. There was a study done by two individuals at the University of Waterloo (yup, that's close to home, lol) that I'll have to dig up that showed the statistical relationships used for maxing a company's profit with any credit offering and it showed how overly conservative companies can be in their lending practices. Their findings have, however, have seemed to trickle through to a handful of bankcard companies, and they continue to fine-tune this.
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| | Saturday, February 24, 2001 - 01:07 pm After looking this up in my favorites, I came to this website and page: http://www.abrisksolutions.com/aboutus.htm Also, check out as well: http://www.ccrma.org/ and follow the links to "Foresight Beats Hindsight - Maximizing Portfolio Returns by Optimizing the Cut-Off Credit Score by Thomas Åstebro and Fabian Rucker." Åstebro is president, Astebro-Bernhardt Ltd., and Professor, University of Waterloo. (Adobe Acrobat pdf documents) Rucker is director, Business Development, at Astebro-Bernhardt Ltd. Astebro-Bernhardt Ltd. assists financial institutions in developing more efficient and profitable credit processes. This is Åstebro/Rucker’s second contribution to The Journal of Lending & Credit Risk Management. It's interesting who these types are contracted by. These and such folk are the types of people behind the shadow world of scoring and if one digs a little their findings are very much public and such ones get hired by the big corporations and the Fair Isaacs of the world.
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| | Saturday, February 24, 2001 - 03:51 pm Which would you prefer to loan to, someone who had a PAID CCCS account, a paid collection account, an unpaid collection account or a discharged through bankruptcy account?
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| | Saturday, February 24, 2001 - 07:02 pm I don't recall ever seeing a PAID CCCS notation and it wouldn't bother me at all. Assuming current counseling and recent collections (based on a recent default) and recent bankruptcy, I'd loan to the person that discharged. Most likely he'd have the highest disposable income and little debt. And he can't discharge my loan for a while, at least not in a Ch. 7. I can't imagine making a loan based ONLY on the credit reports. But given 2 identical reports with one of them indicating current credit counseling, I'd assume that the person in credit counseling has financial problems. Many people go into credit counseling BEFORE they have any late payments. Do I want to lend to someone who *apparently* makes their payments on time without any problems or do I want to lend to someone who says "I can't pay my bills and am now in credit counseling in a last ditch effort to avoid bankruptcy?"
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| | Saturday, February 24, 2001 - 09:49 pm I wonder how many people have been tricked into CCCS (or other like programs) that are not in financial trouble. Maybe they are just sick of making multiple payments or want their interest reduced. They see adds saying things like: "Consolidating your debts can give you a whole new way of living affordably!" "No Qualifying, No Limits, Better than a Loan" and "just one affordable monthly payment" "Most creditors reduce or eliminate the interest" "Your Monthly Payments Can Be Reduced up to 60%" and here is the killer "Maintain your good credit rating, or rebuild a damaged one" I wonder how many are fully aware of what consequences this program will have on their credit report. I'm sure CCCS will now tell them that it no longer is "a black mark".
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| | Saturday, February 24, 2001 - 10:54 pm I had a mortgage client who was prequalified by B of A for a 95% loan. I also reviewed her credit and loan application before she got a lease option. A year later her credit was ruined because she fell for the affordable consolidated payment, the promise of reduced interest rates and a coworker's recommendation. On the other end of the spectrum I knew people who got into debt counseling every time they couldn't stand the collection calls anymore.
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