The world of credit: Return on investmentJohn J. Hudockcredit, FICO Today, everyone is concerned about the return on investment - what we get out of something compared to what we put in. We generally have two items to consider: our time and/or our finances. As we get older, our time becomes more critical. We have to make a decision: Do we devote our time or do we compromise and spend a limited period to gain a limited working knowledge and then rely on the experts to guide us? Credit professionals have a responsibility to themselves, their friends and their clients to be aware of the impact of regulations and the evolution of the credit industry. Credit scores and their impact on our daily lives continue to have an aura of mystery about them. Every month, I receive hundreds of e-mails and phone calls requesting the source of creditable credit courses. Recently, I had the opportunity to be a consultant, helping my son Thomas develop the curriculum for the most advanced credited test and study guide on credit scoring that I feel is available. The Credit Score Management Program is being offered by The Institute of Consumer Financial Education (ICFE). The ICFE is a consumer-oriented, non-profit, tax exempt 501(3)c, public education organization based in San Diego. The ICFE, founded in 1982 by the late Loren Dunton, was also known as the National Center for Financial Education, and Paul Richard, RFC is the executive director. They are offering the Credit Score Managers Certified Course at www.creditscoremanager.org or through a direct link from their Web site, www.icfe.org. Their programs also offer many other tips on credit usage. You have to understand your credit score. If you are in the mortgage industry, you should know your credit score, but you probably don't. You should know that 78 percent of all credit reports have errors - some serious. This could be a case of what you don't know could hurt you. Unless you review the information on record at all of the national credit repositories, you could be a victim of inaccuracies or worse, credit fraud or identity theft. Your credit score gives lenders a current view of your creditworthiness when it comes to repaying debt. In my articles, I have written that the current and most widely used method of credit scoring was developed by the Fair Isaac Corporation. I was corrected by a representative of FICO, who wrote me stating, "Sorry, but 'FICO' is a registered trademark for a family of credit risk scoring products, not a synonym for the Fair Isaac Corporation. It is a mathematical algorithm using a variety of inputs [that] predicts the likelihood that a person will become seriously delinquent in repaying a credit obligation sometime in the next 24 months. The three major credit reporting organizations sell FICO credit scores under different brand names; however, all use the same Fair Isaac formula." I have also written that a FICO score below 500 is considered minimal or no credit. This is generally caused by a lack of open active tradelines with no derogatoriness (payments 30 days late or more). Once a derogatory is placed on any tradeline it may remain there for up to seven years unless removed by the creditor. Any comments or information placed on a credit report is at the discretion of the creditor. FICO's representative countered, "Not strictly true - the consumer has the right to add a statement to the credit report. Also, creditors contribute information to the credit bureau, but it is the credit bureau that compiles and produces the credit report. So technically, all information on the credit report is there at the discretion of the credit bureau." I also wrote, "Whether this information is correct or not, it can only be removed by the creditor," and FICO's representative replied, "Again, only the credit bureau can remove information from a credit report. Creditors can request that information they reported be removed from the consumer's file, they can stop reporting the information or they can change the information they report, unless it reaches the time limitations set by law." My interpretation of this is that FICO is saying that the repositories, not the creditors or furnishers of information, are technically responsible for the accuracies and completeness of the credit report. I'll have to do further research on this with the Federal Trade Commission. This may all be moot, as lenders are beginning to use the new VantageScore system. VantageScore was developed by the nation's three largest credit bureaus. The system assigns a letter grade to each applicant's rating - an 'A' for borrowers who are in the top 901 to 990 bracket, a 'B' for those in the 801 to 900 range and so on down to 'F.' The higher your VantageScore, the lower your loan rate. VantageScore was unveiled in March 2006. Though its scoring system should be easier for most consumers to understand, it is my opinion that the FICO scoring system has also evolved to become fatally biased against the consumer, and unless drastically revised, it will eventually be replaced by the VantageScore system. In my articles, I have defined credit into distinct, separate categories. I continually put more emphasis on mortgage credit than any other type credit. Mortgage credit is the level of credit that is needed to satisfy the customer and a lender. All we really need is an accurate credit report and a common sense evaluation. We do not need complicated segmented probability trees, advanced logarithms or anything so confusing that you can interpret the results in too many different ways. John J. Hudock is president of The International Credit Club and The World of Credit, two companies specializing in credit report problems and scores. He also has online continuing education courses on credit approved by the Pa. Department of Banking and the Pa. Department of Continuing Legal Education. John can be reached at (877) 829-5432 or e-mail [email protected] He invites e-mails on any credit topic, will answer each one and publish any that will benefit his readers. Please be specific with your questions.