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     | Tuesday, January 25, 2000 - 10:44 pm  Can anyone provide any logical, common sense reason why finance company accounts are considered less favorable than credit issued by a "bank"? What's the difference?
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| | Wednesday, January 26, 2000 - 12:09 pm Finance companies often give out offers like "No payments until July 2000 (six months) if you buy today." If these companies report they're going to report for February-June that you're paying like you should, even though no payment was required or received. Accordingly a finance company reporting you as current has less meaning than a credit card company or installment loan company reporting you as current.
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| | Wednesday, January 26, 2000 - 01:59 pm Well, you lost me there Sean. You are right about these offers, but are you saying they are reported as if payments had been made? It is technically impossibly to report that no payments are due, to report the facts as they are? It's my understanding that you LOSE points for finance company accounts. Which is different from not gaining as many as for a bank card. I believe the reason for the NEGATIVE (as opposed to less positive) effect is that people who are not very financially sophisticated accept the high interest checks that are sent out unsolicited. And of course, finance companies do business with Low Scorers. They charge interest rates of 20% and even much higher. Subsequently, it is the American Way to punish those Low Scorers by deducting even MORE points for paying a finance account in a timely manner. Why isn't there a warning on any finance company account advertisement and application, informing the consumer that their credit worthiness will be lowered even if the account is always paid on time?
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| | Thursday, January 27, 2000 - 05:15 am It is technically impossibly to report that no payments are due, to report the facts as they are? Depends upon how you look at it. Whether you agree to a monthly payment that begins next month or one that starts two years from now, as long as you fulfill your part of the agreement then you are PAYING AS AGREED/NEVER LATE. This is what MasterCredit credit card company will report AS WELL AS what ABC Finance Company will report. My assumption (yes, it's only an assumption) is that most people with good credit, a nice savings account and/or investments and a decent income will not turn to a high interest "quick money" finance companies for money. To me, this would indicate that they aren't really in a position to pay back a debt if something unexpected were to arise. Why would they rely upon a finance company if they have savings or good enough credit to get the money elsewhere and at a lower overall cost? Hey, did we almost agree on something?!?! :)
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| | Thursday, January 27, 2000 - 06:50 am Seems like agreement. I'm clear that RCB and Christine are giving their theory and assumption. Curious as to whether Sean's slightly different position comes from theory or another source. I've never understood these finance companies. From a legal standpoint, they do things horribly. I've seen them forget to properly secure their allegedly secured loans. And when people file bnk a month after buying financed property, with no payments for a year, the creditor does not bother to come in for reaffirmation. So practically, the Debtor usually never pays. The theories above make sense. Especially that FICO assumes that only a person in trouble would use a finance company. But it raises another question. I have taken it on faith that if any finance company appears on a credit report, one loses points. I have read it so often that it must be true. Is that an old wive's tale that we have all accepted? Is there conclusive authority for that? Or is it possible that, as Sean says, the info reported by a finance company simply has less meaning?
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| | Thursday, January 27, 2000 - 08:37 am My theory, for what it's worth, is that finance companies are the ones more like to give you the "no payments until 2001" offers. Since the procedures of Experian are the ones I am most familiar with, my example is drawn from Experian procedures. See the Experian credit report key and scan for the word "update." You will be in the middle of the payment history codes. There are three ways a credit grantor can report you as current. a) That you owe a balance and you made the minimum payment; b) That you owe nothing and no payment was made; or c) They just don't send your information on their update tape, which means 0 balance. In the Experian format these codes are C for Current, 0 for no balance, and N for no update received. You are aiming to have your report show Current, that you had a payment due, that you made that payment properly. That's a good mark for you -- it actually gains you points. Anything less than that ranges from neutral to negative. For example if you got a card, charged one thing on it and paid it off, then threw it in the bottom sock drawer your payment history might look like this: BNNNNNN000000C and your comment might be "Account Inactive / Closed by Credit Grantor." Now when a finance company marks your payment history like this: CCCCCC meaning that you're made your minimum payment for 6 months in a row, they don't come right out and say that your minimum payment may have been $0.00 and that the way you're going to handle this debt is still one big question mark. Scoring models compensate for this by adding the "consumer finance fudge factor" in which they subtract a statistically determined number of points for "too many" consumer finance accounts.
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| | Thursday, January 27, 2000 - 10:11 am My theory, for what it's worth, is that finance companies are the ones more like to give you the "no payments until 2001" offers. We purchased a new bedroom set. We picked everything out, had the salesman write it up I was cheesed that their prices were only that low when the financing was crappy and vice versa. So, when he was done writing it up, I said "Call me when you're financing is 0% for 2 years!" and walked out the door. Two weeks later, he called. 0% accrued for 2 years. We got the sales prices, too, since he already wrote it up. :) Oh (back on topic) - the financing was through Citibank (not a finance company). But they later sold the account to Household Finance or something like that (no reason - just sold). I wonder if my scores got slammed because of that nice move ...
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