Thursday, July 31, 2008

Shopping for Student Loans Can Damage a Student's Credit Score

College students have been encouraged to “shop around” for student loans. Now, it appears that doing so could damage their credit score.

The New York Times declares: “Since lenders quote higher interest rates to applicants with lower scores, some students could end up paying thousands of dollars more in interest over the life of their loans.” The Times goes on to note: “Mortgage and auto loan seekers who comparison shop within a relatively short period of time do not see their credit scores suffer. But Fair Isaac, the company that helps credit bureaus calculate credit scores, does not extend the same break to private student loan applicants or their parents, who often co-sign for loans.”

The New York State Attorney General’s office has asked Fair Isaac to treat student loan borrowers like car and home shoppers. So far, according to the Times, Fair Isaac has refused to change its policy.

Fair Isaac administers the popular FICO score, which is based on formulas that assume that multiple inquiries within a short period of time indicate that the potential borrower is financially troubled or may even be going bankrupt.

Not many people shopped around for the best rate before the student loan scandals erupted, the Times observes. Accordingly, Fair Isaac states that it does not have a sufficient database of private student loan data to mine.

Fair Isaac does not believe that any damage occurs most of the time. According to Experian, one of the three major credit bureaus, a small drop in credit score is possible.

source : http://www.google.com/news?

Tuesday, July 29, 2008

Going for the Score

It was the mother of all conference calls. Leading the pitch was Commissioner of Administration Angele Davis, surrounded by her staff in the Division of Administration's meeting room. Treasurer John Kennedy had phoned in from his office, along with bureaucrats from economic development, revenue and other agencies. Anyone with any sort of institutional knowledge of Louisiana's economy had a dial tone for the virtual meeting.

On the other end, from their international headquarters in New York, sat credit analysts for Standard & Poor's. Davis led them through a 48-page PowerPoint presentation. One staffer recalls that the credit analysts shot off rapid-fire questions throughout the presentation, which took up the better part of a workday. On the line, quite literally, was Louisiana's credit score.

Davis argued that the state's rating should be bumped up. Referring to the PowerPoint, she showed the analysts that Louisiana has enjoyed surpluses over the past three years; money in the general fund has outpaced the pre-storm trend; and the fiscal forecasts used by the state to craft its budgets traditionally side with caution.

A few weeks later, Standard & Poor's responded by increasing Louisiana's general obligation bonds from "A" to "A+." The shift translates into lower interest rates on bonds sold by the state, meaning it will cost less for the state and taxpayers to borrow money for public projects. Kennedy says those savings should eventually add up to $3.75 million. "We have been working for three years to regain the bond ratings we had before the hurricanes, and all of our hard work has finally paid off," says Kennedy.

S&P credit analyst Peter Murphy says the upgrade was awarded because of "continued strong revenue performance and budget discipline in the aftermath of hurricanes Katrina and Rita." He also says the state has "prudently managed surpluses by allocating them to one-time expenditures or to recurring items that are affordable." The existence of a Rainy Day Fund, which has remained full since 2006, was likewise noted, as was Louisiana's budget-spending cap.

Davis also shopped scores for $200 million of Louisiana's bonds with two other credit-rating agencies. The bonds, scheduled to sell on July 15, received similar treatment. Moody's Investors Service, another national firm, upgraded Louisiana's "General Obligation" bond rating from "A2" to "A1" with a "stable" outlook. "This upgrade is comparable to the rating assigned to us yesterday by Standard & Poor's and, like yesterday's increase, provides Louisiana with the same rating as California," Davis said earlier this month.

The combined reviews offer a positive snapshot for the state. Moody's tends to focus on the debt burden and budget operations of the bond issuer, while Standard & Poor's traditionally considers the issuer's economic environment as one of the most important elements in its analysis. The firms are also considered among the toughest from which to earn an "A" rating.

Still, the reviews are peppered with some negatives, and the outcome — a boost in score — glosses over the state's dismal national rankings in some areas. Furthermore, the press releases issued by the administration of Gov. Bobby Jindal, a Republican, largely failed to mention that most of the credit — at least this go around — rests with the administration of former Gov. Kathleen Blanco, a Democrat. Credit analysts used the past three full years of performance to make their decisions, which is actually the lion's share of Blanco's only term.

And while Louisiana now has the same rating as California, it only means the Bayou State is now tied — for the bottom position. Michael DiResto, a spokesperson for the Division of Administration, says S&P credit analysts specifically voiced concerns about Louisiana's over-reliance on oil and gas money. The analysts also identified revenue diversification as a way to keep moving up in the rankings. In response, the state is looking at different forecasting models that play down the impact of mineral revenues, DiResto adds.

Analysts from Moody's, meanwhile, lament in their review that the "state's economic engine, New Orleans, was the area most affected by the hurricane." It also notes the inflation of debt ratios in Louisiana and the state's concentration in two "relatively volatile sectors (tourism and energy)."

The Moody's reviewers even predict that Louisiana's ranking could potentially decrease if recent legislative action doesn't bear fruit. Particularly, this could happen if "tax cuts contribute to deterioration in the state's available resources" or if "economic development plans do not materialize."

Fitch Ratings, the third rating firm queried by Davis, eventually fell in line as well, upgrading Louisiana's GO bond rating from "A" to "A+." Still, the accompanying review brought with it a familiar tone: "It remains to be seen how much of the recent revenue strength is sustainable over the long term."

The Fitch report also took an understandable swipe at recovery efforts: "Progress in the recovery of New Orleans continues slowly. Implementation of the state's $7.5 billion "The Road Home' housing program, designed to be funded through federal community development block grant and hazard mitigation monies, has been slow and to date approximately 20 percent of homes have been rebuilt through the program."

Considering the negatives and the next time period likely to be considered for an upgrade, it'll be squarely on the shoulders of Jindal's administration to increase Louisiana's scores again. Team Jindal, according to the rating agencies, will need to diversify the job market, increase income levels and maintain budget discipline. It's a harsh reality that isn't lost on the man in charge.

source : http://www.bestofneworleans.com/

Tuesday, July 22, 2008

Credit unions: Safe as a banks

NEW YORK (CNNMoney.com) -- Gerri Willis answers reader's questions.

1. How safe are credit unions?

Is it possible to find out about credit unions? How safe are they at this time? - Willie, Florida

Credit Unions are just as safe a bet as banks are. Instead of the FDIC guarantee, you have the NCUA to back up your accounts up to the same amounts.

The NCUA stands for the National Credit Union Association. According to them, there have been six credit union failures so far this year, but as long as you have $100,000 or less in an individual account or $250,000 or less on a retirement account, you're insured. Plus, credit unions may have marginally better interest rates and rates on CDs, savings accounts and money markets.

To find a credit union in your area, go to

2. Do credit checks lower your FICO score?

I have registered with a number of temp/perm agencies all of which ask and insist on allowing them to check my credit report. I know that some inquiries to a credit report lowers the FICO score. Do these kinds of inquiries lower the FICO score also? - Elizabeth

Good news here Elizabeth. A potential employee inquiry will not lower your FICO score. If you check your own score, that won't impact your FICO score either.

While you are correct that some inquiries do impact your score. For example, if you apply for a credit card, an auto loan or a mortgage, that will lower your score. Basically anytime you seek access to more credit your score will be lowered.

3. Do lenders have to offer student loan consolidation?

Are lenders required to offer loan consolidation opportunities? My daughter has her student loans with Sallie Mae we searched their website for information regarding loan consolidation, but apparently hey do not offer it any longer. - George, NY

Lenders don't have offer consolidation loans or any particular type of loan. And your problem is a common one. A lot of lenders have stopped consolidating loans, including Sallie Mae.

source : http://money.cnn.com/

Friday, July 11, 2008

Will Congress Help Your Credit Score?

A bill that is moving through the hallways of Congress would not only prevent a new wave of foreclosures, but salvage the credit scores of hundreds of thousands of homeowners as well. Read on to find out whether it could help boost your score.

While many factors are considered, a foreclosure can leave a big black mark on a consumer's credit rating for up to seven years, according to Ethan Dornhelm, senior scientist of scoring solutions at Fair Isaac(FIC - Cramer's Take - Stockpickr), the company that developed the FICO score.

"The FICO score certainly going to take it into account for as long as it's found on the credit score," says Dornhelm. But, he adds, "if the consumer gets back on the horse shortly after the foreclosure ... as that foreclosure gets older and older, the impact will diminish."

The legislation would allow homeowners who are saddled with high-interest debt to refinance with safer, more affordable mortgages under a proposed $300 billion Federal Housing Administration program. Under current law, those consumers are too risky to qualify for government-backed loans.

Details are being ironed out House and Senate, but President Bush has promised a veto. The ultimate fate of the bill will have implications that could drastically alter a large swath of the country's finances.

Those with stellar credit scores who have not yet made a late payment stand to benefit most from the proposed bill.

source : http://www.google.com/news?

Sunday, July 6, 2008

SCORE: Patriot Express offers business loans for veterans

Q: Your column recently mentioned a Small Business Administration loan program called Patriot Express for military veterans and their families. Can you provide more details about the program?

— Geoff M., Bonita Springs

A: Geoff, yes, if you are a current member or veteran of the military, the Reserves, National Guard or a spouse or widow of any of these you may qualify for a Small Business Administration loan guarantee from a participating lender.

To find a participating lender, go to www.sba.gov/patriotexpress.index.html. Click on “Lender List & PE Forms” and then click on “Approved Patriot Express Lenders.” This will bring up a national list of lenders, some of whom are domiciled or have branches in Southwest Florida.

Banks generally like the program because the government guarantees up to 85 percent of the loan if the borrower defaults. Loans can be used for a variety of purposes such as working capital, startup, expansion, purchase of equipment, inventory or business-occupied real estate.

The SBA guarantees 85 percent of loans up to $150,000 and 75 percent from $150,000 to $500,000. For loans of more than $350,000, lenders are required to take all available collateral, possibly including the deed on your home. Most banks also will require owner equity, which means you must put up to 25 percent of your own money into the business, independent of the SBA loan. The logic here is if you don’t have the confidence to invest your own funds, why should the lender invest in you?

Make no mistake, this is not a government welfare program. Borrowers must qualify based on credit score, collateral, owner equity, a solid business plan, and demonstrate an ability to repay the loan in a timely fashion. However, if you are having trouble securing a conventional business loan, an SBA guarantee may be the solution.

source : http://www.naplesnews.com/news/

Wednesday, July 2, 2008

Consumers can get free credit score, report as part of settlement

Consumers can find out their credit score and get a credit report at no charge under terms of a recently settled class action suit involving TransUnion, one of the country's three major credit reporting agencies.

Anyone who has ever had a credit report on file with TransUnion between Jan. 1, 1987, and May 28, 2008, is eligible to receive this benefit as part of getting free credit monitoring.

This means anyone who had a credit card account or loan open during this time is eligible. That could be more than 160 million Americans.

Under terms of the settlement, eligible consumers will be able to select either a free six-month credit monitoring service that TransUnion normally sells for $59.75 or a nine-month enhanced credit monitoring service that costs $115.50.

It is believed to be the country's largest class-action settlement in terms of the number of people that are covered, said Ken McEldowney, executive director of San Francisco-based Consumer Action.

The three major credit reporting agencies do provide credit scores to consumers either through a one-time charge or through credit-monitoring services that are sold on a monthly subscription basis.

Credit reports amount to a history of what kind of loans and credits cards you have and whether your bills are paid on time. A credit score is a three-digit number, typically ranging from 300 to 850, that is based on the information in your credit report. The higher the number, the more likely lenders view you as good credit risk who will pay off loans.

McEldowney had mixed reviews on the settlement.

It's a good thing for consumers in that it will probably result in more poor people becoming aware of their credit history and credit scores, McEldowney said. The people that take advantage of the free credit report program tend to be higher-income people, he said.

Still, McEldowney said the free credit score being offered by TransUnion is its own product and not an actual FICO credit score, which he said is more useful to consumers.

"So it is less valuable, but I think it would still be useful in terms of letting people know in general how their credit history is viewed" by potential lenders, he said.

The settlement agreement was reached in May between Chicago-based TransUnion and attorneys who filed the lawsuit on behalf of consumers over alleged privacy issues.

source : http://www.mercurynews.com/businessheadlines/ci_9716378?nclick_check=1