Students beware: Being smart hurts some credit scores

July 28th, 2008

This Sunday's New York Times shed further light on the problem with credit scores like Fair Isaac Company's FICO score. In short, students applying for loans are penalized for shopping around for a competitive interest rate.

I find it outrageous that young consumers, most of whom are just starting to build a credit history, are harmed for exercising sound financial judgment. This is another symptom of mysterious "black box" risk scores... it's not just your payment activity or balances they look at. They try to gauge your intentions to predict how risky you are.

In this case, the score gets it dead wrong:

Lots of inquiries send the wrong signals to the formulas that create the popular FICO credit score... namely that borrowers may be applying for multiple loans because they're financially troubled and potentially going bankrupt.

The damage is even greater for young students who have a short credit history.

There's even a website, a sort of Lending Tree for student loans, that aims to circumvent the vicious cycle of:

  • Shop for a loan
  • They check your credit
  • Your score drops
  • Try somewhere else
  • They check your now-worse credit
  • Your score drops further...

The FICO creators need to come out from hiding behind the black box, where our smarter score proudly sits. Or at the least, they should overlook multiple hits to the credit file of student loan shoppers. (A similar exception exists when you are shopping for an auto or home loan; that is, when different loan officers check your credit in the same two weeks, it doesn't damage your score.)

Name-your-own-credit-score

June 16th, 2007

We don't rely on traditional credit scores for many reasons:

  • They ignore factors that landlords care about
  • They consider factors landlords do not care about
  • They are subject to manipulation

Today's New York Times illustrates how to cheat the system and raise your credit score by piggybacking on someone else's good record.

This is big business, and a major problem in the mortgage industry, where 1 in 4 loan applications include fraud by way of falsified documents or false credit reports!

You're asking for trouble if you're a landlord that uses FICO or relies on a pre-packaged "risk score" from a resident-screening company. These scores can be gamed, whereas our screening reports are not vulnerable to this sort of manipulation.

Get in touch for more ideas on how we can help you rent with confidence.

NY Times: Only the Strong Survive

November 26th, 2006

The New York Times knocked on our door, asked me our secrets, took my photo and published a lead story in their Real Estate section.

The Times asked: In a strong Manhattan rental market, just how good do your credentials need to be?

The answer: Only the strongest survive.

New York heavyweights weighed in their experience with screening residents, using as many dog references as possible:

Citi Habitats:

"It’s very pro-tenant here in terms of the courts. To evict someone who isn’t paying, it can take six months to go through the right legal process."

Manhattan Skyline Management:

"More information is always helpful, as far as we’re concerned."

Us:

"We have people all the time with a 700 to 800 FICO score, but their landlord-tenant record is horrible. We called the former landlord of a woman who had moved to New York from Georgia. Although her income and credit were excellent, her ex-landlord reported that she had not paid the rent for three months and abandoned her dog when she left."

Anita Ray, who thought her credit was good enough:

"It kind of makes you feel like you’ve done something wrong. You feel like a kicked puppy or something."

Glenwood Management:

"For some reason, when people go into a divorce, if it’s nasty, people stop paying their bills more often than not."

Archstone-Smith:

"You shouldn’t have the same feeling in your stomach as when your dentist tells you that you need a root canal."

Get the full story.