Business

Why Do Credit Bureaus Exist Anyway?

Credit bureaus have a direct impact on your quality of life. Do you know how and why? Learn about a new proposal to get rid of the credit bureaus.

Published

8 months ago

February 25, 2021

Anthony Hill

It’s 2021 and as the saying goes, “The more things change the more they stay the same.” If you’re old enough to remember the 1990s, beyond the bad hairstyles and crappy internet service, you would remember the constant TV ads promoting the American Express, Visa, MasterCard, and Discovery credit cards. You practically saw them on every channel 24/7 with all the lifestyle glitz and glamour that came with the ownership of each respective card.

What was not included in the commercial hype was how much these credit cards would affect the underlying system that would directly impact the quality of your life for decades to come–your credit score calculated by the top 3 credit reporting bureaus: Equifax (NYSE: EFX), Experian PLC (OTC: EXPGY) and TransUnion (NYSE: TRU).

What are Credit Bureaus you might ask?

A credit bureau, also known in the U.S. as a “credit reporting company” or “credit reporting agency,” is a private organization (not a government department) that collects and researches individual credit information and sells it for a fee to creditors, so they can make decisions on granting loans.

Their primary purpose is to ensure that creditors have the information they need to make lending decisions. Typical clients for a credit bureau include banks, mortgage lenders, credit card issuers, and other personal financial lending companies.

Source: https://www.investopedia.com/terms/c/creditbureau.asp

What’s a Credit Score?

Credit bureaus acquire their information from data providers, which can be creditors, debtors, debt collection agencies, vendors, or offices with public records (court records, for example, are publicly available). Credit bureaus then use a range of methodologies to calculate a person’s credit score based on this credit history.

The most common credit scoring system in the U.S. is called the FICO scores, created by the Fair Isaac Corporation in 1989 and ranges from 300 to 850 (A good FICO score, for example, is considered to be one in the 670 to 719 range). There are at least 19 commonly used FICO scores, and each is calculated differently with an eye toward different types of clients, allowing credit issuers to choose the type of credit score that best fits their inquiry. Credit bureaus then add the credit score to the information they’ve accumulated and issue a comprehensive credit report, which provides credit issuers with information that helps them determine credit approval and appropriate interest rates for borrowers. An individual with a higher credit score will likely have a lower interest rate on a loan.

Experian Credit Score Range

How your credit score is calculated

Tip: You are entitled to one free credit report every 12 months from each bureau, but you may have to pay to see your credit score.

Source: https://www.investopedia.com/terms/c/creditbureau.asp

How Credit Bureaus control your life?

While credit bureaus don’t make lending decisions, they are very powerful institutions in finance, and the information contained in their respective reports can have a substantial impact on an individual’s financial future.

Please keep in mind these are private companies that use your data to generate a report that is sold to other companies, banks, and credit lenders. All too often, these reports contain inaccurate information that can negatively impact your score.

Tip: You can get your credit report fixed if it contains inaccurate or incomplete information:

Contact both the credit reporting agency and the company that provided the information to the CRA.
Tell the CRA, in writing, what information you believe is inaccurate. Keep a copy of all correspondence.

Tip: If you have a problem with credit reporting, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

Having a low credit score (less than 630) from any of the 3 main credit bureaus can limit your ability to purchase a house or car, rent an apartment, acquire low-interest credit cards and/or loans, and even land a good-paying job.

The proposition to end Credit Bureaus

In 2019 a paper was written and published by a think tank group named Demos proposing to replace our failed for-profit credit reporting system with a public credit registry that will benefit consumers and reduce racial wealth inequality.

Demos proposes establishing a public credit registry housed in the Consumer Financial Protection Bureau. This publicly run credit registry will gradually replace the current for-profit corporate system and is designed to be responsive to consumer needs and equity concerns rather than the corporate bottom line. A public credit registry will develop algorithms that diminish the impact of past discrimination, deliver transparent credit scoring, provide greater data security and offer a publicly accountable way to resolve disputes. The use of credit information for non-lending purposes, such as employment, housing, and insurance, will be curtailed.

Source: https://www.demos.org/policy-briefs/establish-public-credit-registry

Fast forward to 2021, and the Biden Administration may be seeking ways to shut down credit bureaus over time and implement Demos’ proposal as a means to improve people’s access to credit and standardized calculations.

Here’s a great video explaining how this proposal would work and what it’ll mean for you.

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THE END OF CREDIT SCORES | Major Changes Explained

Recently, there is a push to end the current credit scoring system, and to create a new credit score based on different criteria - here's what this means for you - Enjoy! Add me on Instagram: GPStephan

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Why the new plan wants to get rid of the current credit score:

First, the 3 big credit scoring agencies: Experian, Equifax, and Transunion - are all privately held, FOR PROFIT corporations - that gather data, and then develop their own, independent algorithms to predict how likely YOU are to re-pay a loan.

SECOND, the current credit scoring system is often HIGHLY INACCURATE - and it’s difficult to correct false information. In fact, according to the FTC, 20% of ALL people have at least 1 error on their credit report….and those errors have the potential to lower your credit score, hurt your ability to get a new line of credit, and cost you a higher interest rate.

THREE: The current credit scoring model leaves a LARGE PORTION of the population “credit invisible.”
That’s why 20% of the US Population falls into the “invisible” category, where they don’t have a credit score, simply because they’ve never needed credit to begin with.

FOUR - The Credit Scoring Model contradicts itself…a LOT.

Here’s just a few examples:
-If you want a good credit score, you’re REWARDED for having higher credit limits, along with the ability to take on even MORE DEBT, because THAT is how you establish your payment history.

-You’re also REWARDED for keeping your accounts open AS LONG AS POSSIBLE, even if you don’t use those accounts - otherwise, the average length of your account history will drop, which then lowers your score.

-You’re ALSO REWARDED if you take on different TYPES of loans, like credit cards, auto loans, mortgages, and leases - because then, lenders see that you can responsibly handle multiple types of debt…and that’s GOOD!

-But, you can also get PENALIZED for opening up TOO many credit lines, too fast…because that shows up as a hard inquiry on you report, and that’s BAD.

AND FIFTH - they say that the credit scoring system excludes too many people.
Since credit scores reward extensive credit history - younger borrowers suffer from lower credit scores, and higher interest rates - just because they aren’t old enough to have build up a proper profile. Lower income applicants are also 8x more likely to lack credit history, because they’re more likely to rent, and rent payments don’t show up on a credit report, which means they have a lower credit score, which means they’re charged a higher interest rate…which means, they have less money left over, and the cycle continues.

So, now - the SOLUTION being proposed is creating a NEW, MORE FAIR SYSTEM that would work like this:

They want to create a publicly run Credit Reporting Agency within the Consumer Financial Protection Bureau that would eventually replace the current for-profit credit system, with a NEUTRAL, NONPROFIT PUBLIC entity.

As they say, it would deliver transparent scoring, provide greater data security and offer a publicly accountable way to resolve disputes. They would also CAP the interest rate no higher than 36%, clean up debt collection practices, and even potentially - discharge student loans in bankruptcy.

Things like bank account data, rental payments, and utility payments would also be a factor in determining a credit score, and negative information would fall off after 4 years, instead of the 7 it is now.

If you already have a good credit score - just continue to pay your rent and utilities on time…and you’ll be fine. And if you’ve got a BAD credit score…then you should continue paying your rent and utilities on time.

For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com

*Some of the links and other products that appear on this video are from companies which Graham Stephan will earn an affiliate commission or referral bonus. Graham Stephan is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available.

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Business

What Are Non-Fungible Tokens (NFTs)

Ever heard of Bitcoin, Ethereum, and the various altcoins? There’s a new cryptocurrency type on the block and it’s called a Non-Fungible Token or NFT for short.

Published

5 months ago

May 15, 2021

Anthony Hill

Ever heard of Bitcoin, Ethereum, Litecoin, and the thousands of altcoins that make up the cryptocurrency world? Well, there’s a new kid on the block and it’s called NFT or short for Non-Fungible Tokens. If you’ve been following the cryptocurrency space in the last few months you know what I’m talking about. For the uninitiated, get ready to be rocked.

What Is a Non-Fungible Token (NFT)?

Non-fungible tokens or NFTs are cryptographic assets on blockchain with unique identification codes and metadata that distinguish them from each other. Unlike cryptocurrencies, they cannot be traded or exchanged at equivalency. This differs from fungible tokens like cryptocurrencies, which are identical to each other and, therefore, can be used as a medium for commercial transactions.

Source: https://www.investopedia.com/non-fungible-tokens-nft-5115211

How Are NFTs Used?

The distinct construction of each NFT has the potential for several use cases. For example, they are an ideal vehicle to digitally represent physical assets like real estate and artwork. Because they are based on blockchains, NFTs can also be used to remove intermediaries and connect artists with audiences or for identity management. NFTs can remove intermediaries, simplify transactions, and create new markets.

In fact, in the last several months there have been several large art sales happening with the most expensive (at the time of this post) being the Beeple sale of $69 million. Yes, you read that right. As crazy as that might sound, the NFT marketplace is booming with some crazy digital art sales. Here are 11 of the highest NFT sales.

As NFTs gain in popularity, so are the amount of NFT marketplaces growing in numbers. According to the guys at Influencer Marketing Hub, these are the top 10 Marketplaces for buying and selling non-Fungible Tokens (NFTs):

NFTs in a Nutshell

Source: https://www.investopedia.com/non-fungible-tokens-nft-5115211

If you’re an artist or a digital media creator it wouldn’t hurt to try your hand at selling some of your artwork on one of the many NFT marketplaces. Who knows, maybe it just might be a life-changing experience with life-changing rewards.

Business

Using Fiverr to Generate Over $300k

There are a growing number of people using Fiverr to generate over $300k per year doing what they love almost anywhere in the world. Learn How.

Published

5 months ago

May 12, 2021

Anthony Hill

Nowadays there is no shortage of ways to make money at home with the skills you already have or new skills you can acquire in a short amount of time. One of the biggest platforms fueling the freelance economy is Fiverr. In fact, there are a growing number of people using Fiverr to generate over $300k per year doing what they love almost anywhere in the world.

So what exactly is this Fiverr we speak of? Fiverr is one of the world’s largest marketplaces where freelancers can provide digital services to consumers and businesses alike. The price of services freelancers provide varies from $5 to $10,000 with the ability to upsell faster turnaround time and better quality services. At any given point, their databases contain millions of gigs freelancers can secure to earn as much income as they can handle.

The guys over at The Iced Coffee Hour interviewed Alex Fasulo , a Fiverr freelancer making over $300k per year off Fiverr gigs. Check out the interview above.

Business

Feds Give $25,000 Down Payment on Your First House

Biden administration proposes a $25,000 down payment assistance grant for first-time home buyers.

Published

6 months ago

April 19, 2021

Anthony Hill

2021 has been an interesting year so far for the real estate market. Clearly, it’s a seller’s market as property prices continue to skyrocket across the nation as inventory become scarce and droves of people migrate from densely populated cities in the North East and West Coast to Southern and Mid-West regions. The Feds are also noticing this shift and are proposing a $25,000 grant for first-time homebuyers to use as a down payment.

Say what you will, but I think that’s pretty awesome and will be a major help for some people that’s always wanted to own their own house for quite some time but never had the money to put a 10-20% down payment. Let’s learn more about how this Federal grant/credit would work.