Millions Of Americans Just Got An Artificial Boost To Their Credit Score

Tyler Durden's picture

Back in August 2014, we first reported that in what appeared a suspicious attempt to boost the pool of eligible, credit-worthy mortgage and auto recipients, Fair Isaac, the company behind the crucial FICO score that determines every consumer's credit rating, "will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency." In doing so, the company would "make it easier for tens of millions of Americans to get loans."

Then, back in March of this year, in the latest push to artificially boost FICO scores, the WSJ reported that "many tax liens and civil judgments soon will be removed from people’s credit reports, the latest in a series of moves to omit negative information from these financial scorecards. The development could help boost credit scores for millions of consumers, but could pose risks for lenders" as FICO scores remain the only widely accepted method of quantifying any individual American's credit risk, and determine how much consumers can borrow for a new house or car as well as determine their credit-card spending limit

Stated simply, the definition of the all important FICO score, the most important number at the base of every mortgage application, was set for a series of "adjustments" which would push it higher for millions of Americans.

 

Source: cafecredit

The outcome of these changes was clear for the 12 million people impacted: it "will make many people who have these types of credit-report blemishes look more creditworthy."

Now, as the Wall Street Journal points out today, efforts to rig the FICO scoring process seems to be bearing some fruit.  The average credit score nationwide hit 700 in April, according to new data from Fair Isaac Corp., which is the highest since at least 2005.

Meanwhile, the share of consumers deemed to be riskiest, with a score below 600, hit a new low of roughly 40 million, or 20% of U.S. adults who have FICO scores, according to Fair Isaac. That is down from 20.5% in October and a peak of 25.5% in 2010.

FICO

 

Of course, to be fair, we are also reaching that critical 7-year point where the previous wave of mortgage foreclosures start to magically disappear from the FICO scores of millions of Americans. 

Mortgage foreclosures stay on credit reports for up to seven years dating back to the missed payment that resulted in the foreclosure. Foreclosure starts, the first stage in the process, peaked in 2009 at 2.1 million, according to Attom Data Solutions. They totaled nearly 1.8 million in 2010 and remained above one million during each of the next two years.

 

Personal bankruptcies are more complicated and can stay on credit reports for seven to 10 years.

 

Consumers who filed in 2007 for Chapter 7 protection—the most common type of bankruptcy, in which certain debts are discharged and creditors can get paid back from sales of consumers’ assets—are now starting to see those events fall off their reports. Some 500,000 Chapter 7 bankruptcy cases were filed in 2007, a figure that swelled to nearly 1.1 million in 2010, according to the Administrative Office of the U.S. Courts.

 

Chapter
13 bankruptcies, in which consumers enter a payment plan with creditors, usually stay on reports for at least seven years. Those filings reached a recent peak of nearly 435,000 in 2010 and are set to start falling off reports this year.

FICO

 

All of which, as the WSJ points out, will help to "boost originations of large-dollar loans for cars and homes."  Which is precisely what the average, massively-overlevered American household needs...more debt.

Fresh starts for credit reports are likely to help boost originations of large-dollar loans for cars and homes. Consumers have a greater chance of getting approved for financing if they apply for loans after negative events fall off their reports, in particular from large banks that have stuck to strict underwriting criteria, says Morgan Whitacre, who oversees consumer-loan underwriting at Bank of America Corp.

 

Credit-card lending, already on the rise, could increase further as a result of fresh starts. Consumers who have one type of bankruptcy filing removed from their credit report experience a roughly $1,500 increase in spending limits and rack up $800 more in credit-card debt within three years, according to the Federal Reserve Bank of New York.

So maybe that auto lending bubble has a little room left to run afterall...

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serotonindumptruck's picture

Exponential growth on a finite planet is impossible.

serotonindumptruck's picture

Neither do I.

Bad credit, home foreclosure, a recent bankruptcy, and no verifiable income will get you into a brand new car or truck of your choice much faster than a "no credit" score.

knukles's picture

That's bekuz everbuddy in Kalifornia drives an electric car.

serotonindumptruck's picture

Go long Chinese lithium.

No, wait.

Go long Tesla.

No, wait.

Go long backyard gardening and neighborhood food co-ops.

knukles's picture

OK OK  wait wait  ..  it's uh ... because like uh, everybody in Kalifornia is skinny and surfs?  (flashing "dude" sign)

Ignatius's picture

Shit, Knucks, I just realized that paying my bills on time these last 40 years was a waste.

Jokes on me, huh, FED?

I guess Pink Floyd was right, I do need a Lear jet.

Alt Right Girl's picture

Well, the dumb plebs should go spend more money they don't have, but fast 'cause the shit is about to hit the fan.

5 Highly Respected Financial Experts are Warning that a Market Crash is Imminent


ebworthen's picture

I was wondering why my credit score went up to 999 recently.

The Real Tony's picture

Last I looked mine was 888 but I'm in Canada.

exi1ed0ne's picture

This is the same crash I've been expecting annually since the turn of the century.  (No, 2007/8 was nowhere deep enough to qualify as a crash, and was never left to nature as it should have been)  I chalk this up as "Gold/Silver is going to explode to the upside!" and "Oil and Hubbard's peak!"  While all are true and WILL happen, timing is a fools game.  It will actually be like being run over by the slowest train in history, over and over again.  The algos control the market, not the participants.  Orwell was wrong, the boot to the face was too quick.  Make money while you can and save some of the surplus for when it gets lean - same as always.  

Honestly, what in the hell CAN anyone do when our current incarnation of fiat blows up?  Not a god damn thing is what that you shouldn't already be doing even in the best of times.  

And stop pimping that shitty blog on another blog.  Your mama didn't teach you manners, did she? 

swmnguy's picture

Exactly correct.  We can't see the future, so we can't time what we know is going to happen.  And, what will happen will probably happen in a way different from anything we would expect, so it'll be on top of us before we know it's the time.

But that shouldn't frighten or discourage us.  That's just how life goes.

The things that are right and prudent to do haven't ever changed, even though everything else has changed.  My grandfather ran a hardware store in Appalachia through the Great Depression.  He advised me to be wary of debt and only use it for things I either had to have, or which would allow me to earn enough extra money to make the debt payment worth it.  Spend less than I brought in and save the excess for the future, or to pay off any and all debt.  

He also reminded me that a Depression, statistically, is a 20% or greater decline in economic activity.  As he put it, people didn't stop coming in to his hardware store.  Just when they did, instead of spending a dollar they spent 75 cents.  The trick for him was to figure out how to keep the store running and his family fed and housed on 75 cents instead of a dollar.  And how to let his customers buy the things they needed so they kept coming in, but to not let them get in over their heads on credit, because then they'd stop coming in, and wouldn't pay what they couldn't pay.

Nothing you couldn't learn from Dear Abby columns, really.  But it worked then and it still works now.  Some of the schemes being pimped are different, but some are exactly the same.  All are bad ideas.

So yeah, keep doing what you already know you should be doing, and you'll make out as well as anyone can.

And the blog-spamming is just tasteless and rude.  Anyone choosing to brand themselves a la Richard Spencer is a little dubious in my eyes anyway.

 

playnstocks's picture

I started out broke and I have most of it left!

booboo's picture

Drudge has it up so it must be true, happy days are here again.

Sudden Debt's picture

the only factor that counts is age.

If you're in your 20's, you get any loan you want. Why? you've got your entire to downpay it.

30 & 40, you can even get more if you have a history of rising income.

50's... what's your collateral?

 

logicalman's picture

What happens in your 60s?

 

Big Corked Boots's picture

You stop needing stuff.

In your 70's you start selling stuff.

In your 80's you have no idea anymore.

HRH Feant2's picture

True. My father is in his 80s. Sold his house last September thinking he would qualify for another one. No, he won't. He still thinks he is going to write a book and start a farm and buy another house. What to do? If I disagree with him he throws a tantie and hangs up on me.

I advised him to not sell his house. The back taxes? No one cared. All he had to do was fill out a form and they would have collected after he died. Did he do that? No.

Can he type? No. Can he farm? No. He needs help with everything and is in another SNF. He has been in about 10 hospitals since February, one board-and-care home, and wore out his welcome couch surfing with friends. No one wants a cranky old dude that thinks he is 30 but is 84 sleeping on their couch for more than one or two nights.

How long will he be around? The adult services guy said it is rare for someone to last longer than six months, at my father's age, after being homeless. Odds are getting thin for him.

And before people bitch at me, STFU. My father is an adult and I don't have control over him and he has never heeded my advice, ever. People are allowed to ruine themselves. What can you do? Not much.

swmnguy's picture

Sorry to hear that.  Sounds like my dad, in some ways.  It's weird when we get to the age, as adult children, where we have to become the parents to our own parents.  It's never identical for any of us, but in many ways it's all the same.  

I can't control my parents.  They've had a terrible relationship for 50 years and are, to put it kindly, financially incompetent.  I do what I can for them.  They had a lot of kids; I have a lot of siblings; and all of them are pretty darned succesful.  So we've been able to share the burden pretty evenly.  But there's only so much we can do without harming our own families and that we're not going to do.  We all learned a lot of hard lessons growing up in their household, and then when we formed our own households we realized there were a lot of things we were going to have to un-learn as well.

I'm reminded of a friend of mine who ended up settling his grandfather's affairs after the old man dropped dead at about 95 years of perfect health.  One of the things he had to do was cancel an order for a brand-new Cadillac, which the old man bought every other year.  While that's crazy and improvident right on the face of it, you gotta admire the optimism implied.

Anyway, best wishes to you and yours.  It can be tough.  But as you say, what can you do.  They're adults, until they're clearly out of their minds, and even then you can only do what they let you do.

tmosley's picture

Hopefully you are dead by then.

stacking12321's picture

A history of rising income?
How would a credit agency know what my income is?
Hell, I'm not even sure how much I make.

noless's picture

They know what brand of beer you buy.

stacking12321's picture

i pretty much don't buy beer.
and i change my habits fairly often.

as a famous person once said, "man must re-invent himself every day".

oh, wait, that wasn't a famous person, that was me.

Countrybunkererd's picture

So broke people will take on more debt.  And default in what, one or two months?

chunga's picture

The bankers have figured out how to steal money from people who don't have any...just give it to them!

I don't know what my FAKO score is but I DEMAND it be LOWERED 'cuz I ain't borrowing shit from nobody.

Time to light the grill...go Predators!

Countrybunkererd's picture

I do know my score.  But I want mine lowered too.  It is falling because i have nearly zero debt and will continue because i don't intend to take more.

ExplodingEntropy's picture

Gold (and black)wins this year.

Anteater's picture

750-850 Excellent MAGA!!

See, that's all it takes! https://media.giphy.com/media/8fen5LSZcHQ5O/giphy.gif

Trump Prime Mexican Steaks! Everyone says they have the best genes!! The Best!!

Learn the 'Art of the Steal' at Trump University!! We have the Best people!!

Now watch me shave Vince McMahon's head!!

Donald J. Trump's picture

Yes but some people want to play the game.  A good credit score will allow you to play the game with better odds than someone with poir or no credit score.  Sometimes credit is needed when you want to do big things.  There are ways to get a good credit score without being in debt.

Arnold's picture

Employers and insurance peeps look at your score as well.

roadhazard's picture

You got that right. I've been out of debt for years and my score was 820 the last time I checked. I just bought carpet from Lowes and got ten percent off for opening an account. Got the bill and paid it off and threw the card in the desk drawer without activating it. That's how I play the CC game.

swmnguy's picture

Same here.  No debt other than outstanding balance on my mortgage, and I'm years ahead on that.  And last time I bought paint, I got a couple free gallons out of Home Depot in return for a card that's in the drawer, unactivated.

I've helped my kids open their first bank accounts and they've gotten sweet, though low-limit, credit cards by piggybanking on my credit score.  We get the lowest available insurance rates.  When I wanted to open a HELOC as a cushion and to get some home repairs done, I was able to do it over the phone, printing out a couple e-mails, signing, scanning and sending back.  The only limit on what the credit union would lend me was their policy limit of 75% of equity, which I'd be insane to use up, but what the heck.

It's a dumb game but if there are benefits to doing what you'd do anyway, why not.

Cheapening the credit score, while pretending to not loosen lending practices, will erode those benefits.  You and I might have scores of 845 rather than 820.  A 750 score might become the new "subprime."  Funny things happen when you keep moving the goalposts. 

TheRideNeverEnds's picture

Loser

Everything is tied to your score these days.

Even if you are independently wealthy and do not ever need to finance anything or get a job anywhere with decent credit you get rewards cards that pay 1.5% cash back on all purchases and some up to 10% with certain purchases. It literally free money. I have every major card with a combined limit over the median US yeary income. Doesn't mean I use it. Pay everything in full every month, pay zero interest because of this.

I used to be anti credit but now I'm all about it; if the banks want to give me free money for charging things I'll take it. Why not?

Donald J. Trump's picture

Don't forget you're insurance rate is tied to you're credit score too.

chunga's picture

Except in cases like this, I'll bet 

Xena fobe's picture

But applying dings your score.  I have one CC.  All my expenses go on that CC. Then I pay it off each month.  My score is about 800.  No debt. 

 

divingengineer's picture

The way a man repays his debts says a lot about him.
End of story.

Colonel's picture

What does it say about a nation?

stocktivity's picture

How could going bankrupt fall off a credit score? Geez! Only in America.

swmnguy's picture

It always has, after 7-10 years.   Historically speaking, that's always been a huge factor in America's resilience and productivity.  People can actually get out of bad situations and get a second chance.  Of course, when everybody has to rely on that, and instead of extreme misfortunes personal bankruptcy is the only option left for people just trying to get along, what has been a positive turns into a negative.  Changing the rules of the game constantly does eventually render the game itself meaningless.

Oildriller's picture

I paid for my house in cash, have a decent salary, no loans, and have a "credit" score in the 500ds.... A city employee friend, who cannot buy food for 10 days out of 30 each month because of multiple loan installment payments, has a score in the 800ds. I call it the SLAVE index.

johnduncan78's picture

Having NO credit score is worse than bad credit!  Your home/auto insurance will be higher by a ton. Mine doubled every year when I had no credit. Best to get a credit card-you can get a $1,000 limit card about anywhere. Use it once a month for something and pay it off immeadiately so you will have no interest. I did that and went from no credit to a score of over 800. My car and home ins went way down! 

lasvegaspersona's picture

that can't be true or we would have a different monetry system....

serotonindumptruck's picture

Apparently, after a little research, I've determined that the three major prerequisites for a new car loan are the ability to:

 

A) Fog a mirror

and

B) Have a physical address (for the repo man)

and

C) Have a sub-500 FICO score

divingengineer's picture

Where would you like your new muscle car delivered?

stacking12321's picture

I have a physical address I use for everything.

It happens to be a ups store box, $30 a month and worth it.

shovelhead's picture

Does this mean my dog can buy a BMW?