topic Re: What are consumer finance accounts? in Understanding FICO® Scoring

What are consumer finance accounts?

nearlythere — Sat, 03 Mar 2012 14:36:24 GMT

What kinds of accounts are considered to be consumer finance accounts by FICO?

I took a peek at the FICO high achievers thread, and wanted to understand what I was reading.

Thank you

Re: What are consumer finance accounts?

Mustanglvr2006 — Sat, 03 Mar 2012 15:07:07 GMT

nearlythere wrote:
What kinds of accounts are considered to be consumer finance accounts by FICO?

I took a peek at the FICO high achievers thread, and wanted to understand what I was reading.

Thank you

The division of retail banking that deals with lending money. This includes a wide variety of loans, including credit cards, mortgage loans, and auto loans etc......

Re: What are consumer finance accounts?

GregB — Sat, 03 Mar 2012 16:28:10 GMT

"Consumer Finance Accounts" according to FICO, and probably other scoring systems, are NOT the normal CC, Auto Loans, etc.

Example would be a furniture store might offer a customer the ability to buy $5,000 worth of furniture but the person wouldn't have a CC that could handle that purchase. The furniture store might have an account with a "Consumer Finance Company", like GE Capital. The customer fills out an application that goes to GE Capital. The customer might pay a high interest rate or the store might underwrite part of it so the customer doesn't see the high rate.

Payday loans, and other extremly high interest loans are other examples.

There has been some posts lately about Home Depot card being listed as "consumer finance", including mine. It doesn't seem to quite fit the catagory.

Re: What are consumer finance accounts?

pizzadude — Sat, 03 Mar 2012 16:43:13 GMT

GregB wrote:
"Consumer Finance Accounts" according to FICO, and probably other scoring systems, are NOT the normal CC, Auto Loans, etc.

Example would be a furniture store might offer a customer the ability to buy $5,000 worth of furniture but the person wouldn't have a CC that could handle that purchase. The furniture store might have an account with a "Consumer Finance Company", like GE Capital. The customer fills out an application that goes to GE Capital. The customer might pay a high interest rate or the store might underwrite part of it so the customer doesn't see the high rate.

Payday loans, and other extremly high interest loans are other examples.

There has been some posts lately about Home Depot card being listed as "consumer finance", including mine. It doesn't seem to quite fit the catagory.

+1. And it is difficult sometimes to know how your accounts are classified, whether they are consumer finance revolving account or revolving accounts can be difficult to determine.

But the good news is that from a FICO scoring perspective, the consumer finance scoring ding is relatively minor.

Re: What are consumer finance accounts?

Mustanglvr2006 — Sun, 04 Mar 2012 13:20:34 GMT

GregB wrote:
"Consumer Finance Accounts" according to FICO, and probably other scoring systems, are NOT the normal CC, Auto Loans, etc.

Example would be a furniture store might offer a customer the ability to buy $5,000 worth of furniture but the person wouldn't have a CC that could handle that purchase. The furniture store might have an account with a "Consumer Finance Company", like GE Capital. The customer fills out an application that goes to GE Capital. The customer might pay a high interest rate or the store might underwrite part of it so the customer doesn't see the high rate.

Payday loans, and other extremly high interest loans are other examples.

There has been some posts lately about Home Depot card being listed as "consumer finance", including mine. It doesn't seem to quite fit the catagory.

Great info Greg, thank you for correcting me, I just googled "consumer finance accounts" and that's what I found after sifting through several definitions of CFA's.

I'm sorry to the OP for posting inaccurate info, I hate when I do that, thankfully Greg came in and clarified it for you, and gave you the correct answer.

Again my apologies.

Re: What are consumer finance accounts?

RobertEG — Sun, 04 Mar 2012 21:28:24 GMT

"Back in the Day," many consumers, particularly those in rural areas, did not have the ability to credit-shop, so often had to rely on local lendors who often did not offer the best rates and terms. With the advent of internet home banking, personal access to most creditors can be obtained at home, and thus lower risk consumers can now obtain better terms without the need to go to the creditor.

There is a portion of the credit industry that will grant credit to higher risk consumers, obviously in compensation for higher rates and less favorable terms.

As I understand the negative view of such consumer finance companies, when a consumer chooses to use such creditors, it is no longer viewed as a physical necessity, but rather as an indication that they were unable to secure better terms.

Ergo, the viewing of consumer finance companies as an indication of increased consumer credit risk.

What I dont understand is who classfies accounts as CFCs. Obiously, using a small lendor can actually result in lower rates and better terms if the consumer uses them wisely.

One can get a low or zero interest rate loan at Sears, for example, to finance that new refrigerator. While going through a CFC, that does not necessarily indicate a negative consumer risk. So who pegs creditors with such a designation?

Re: What are consumer finance accounts?

nearlythere — Tue, 06 Mar 2012 00:07:02 GMT

Thanks, for the details and background, RobertEG.

Re: What are consumer finance accounts?

nearlythere — Tue, 06 Mar 2012 00:08:26 GMT

Thanks, Mustanglvr 2006. When I first didn't understand the term, I did the whole google thing, too, then figured that my sources were getting too far afield from FICO, so I returned here to post the question. Thanks again for your help.

Re: What are consumer finance accounts?

nearlythere — Tue, 06 Mar 2012 00:08:58 GMT

Much appreciated, Greg B. Thank you.

Re: What are consumer finance accounts?

Mustanglvr2006 — Tue, 06 Mar 2012 21:04:46 GMT

nearlythere wrote:
Thanks, Mustanglvr 2006. When I first didn't understand the term, I did the whole google thing, too, then figured that my sources were getting too far afield from FICO, so I returned here to post the question. Thanks again for your help.

You did the right thing by posting your question here, unfortunately I was the first to respond with the wrong answer:smileysad:

But thankfully our experts chimed in and gave you the correct answer.

Re: What are consumer finance accounts?

GregB — Tue, 06 Mar 2012 21:14:54 GMT

Mustanglvr,

I didn't mean to be critical of your answer but reading it after the fact it reads like I was. Please accept my apology.

Your answer is correct in the meaning of the word in general. I made an assumption based upon the question being in the "Understanding FICO Scoring" forum.

I was referring to the FICO specific negative when your credit report contains "consumer finance" accounts. FICO seems to have chosen a very narrow meaning of the term.

Re: What are consumer finance accounts?

Mustanglvr2006 — Tue, 06 Mar 2012 21:46:46 GMT

GregB wrote:
Mustanglvr,

I didn't mean to be critical of your answer but reading it after the fact it reads like I was. Please accept my apology.

Your answer is correct in the meaning of the word in general. I made an assumption based upon the question being in the "Understanding FICO Scoring" forum.

I was referring to the FICO specific negative when your credit report contains "consumer finance" accounts. FICO seems to have chosen a very narrow meaning of the term.

Please don't be sorry Greg, I did not take your reply as being critical, not one bit.

I am just happy that you did reply and answer the OP's specific question, while I was researching the answer, I did not take into account his specific question regarding "What are CFA's by FICO".

I am also glad that you replied, because I learned something from your reply, and that's one of the reasons I'm here, is to learn, I am also here to try and help others when I can, unfortunately, I can't be right 100% of the time, and it's Members like you that are a vital part of my learning process.

I do greatly appreciate your last reply, that reply just shows your respect for others on this Forum, and I feel that I owe you a Thank You, for providing the specific answer that the OP was looking for, as it taught me something as well.

Thank you again Greg.

Re: What are consumer finance accounts?

Hannah1787 — Fri, 30 Mar 2012 16:01:10 GMT

Our credit union offers a "FICO" score monthly via only banking services. For the first time, it says:

"You recently opened a new credit account." - I have not.

"You have a consumer finance account on your credit report.

Consumer finance companies typically grant loans to people with poor credit histories. Their customers often cannot get loans from traditional lending companies such as banks or credit unions. These are often high-interest loans because the consumer finance company is assuming more risk by lending to people with less than perfect credit.

The fact that you have a consumer finance company loan on your credit report means that you represent a higher risk to lenders than someone with no consumer finance loans. Even if this consumer finance account is closed, it will still lower your FICO score. However, its impact on your score will lessen as time passes."

I don't have anything new I've opened - I'm confused as to what this is? We have good credit and relatively low rates, what on earth is this? We do have a Home Depot card with no balance on it - could that cause this? We've had the account for ages.

Re: What are consumer finance accounts?

GregB — Fri, 30 Mar 2012 20:15:37 GMT

That sounds like exactly what is happening.

For some reason, the HD account is now being reported as a consumer finance account.

Re: What are consumer finance accounts?

MattH — Sun, 01 Apr 2012 21:22:52 GMT

A few years ago my wife and I financed a new A/C compressor for our residence through Carrier (the manufacturer) because the terms were quite favorable. Only afterwards did I realize that because the financing came from Citifinancial (the "consumer finance" division of Citibank), this was treated as a CFL for FICO scoring. Fortunately, on an otherwise clean history one Consumer Finance Loan is a very minor ding. The mailing address for Citifinancial was different from their prime credit card operations, as my wife and I both noticed. She and I both have individual Citibank credit card accounts that were estabished in the 20th century, so the mailing address for Citibank's prime cards was very familiar to us. Today, she and I both pay our Citi bills electronically so it has been a while since either of us sent any snailmail to Citibank, today I have forgotten their mailing address.

Re: What are consumer finance accounts?

wldhrses — Mon, 26 Nov 2012 23:57:48 GMT

Just my two cents, I've been trying like crazy the past 6 months to get get my score up just 5 points to get into the best mortage rates with little success. My report is spotless, my use of unsecured credit at 1%, and I only have a car payment at the credit union. Amongst other revolving credit cards (Amex, chase, zero balance) I also have an HSBC card. It only had with a $200 balance with a low rate, so I figured I'd pay that off last. What I found out according to MyFico after paying it off, was it was considered a 'CFC'. My score went up 22 points!! Reasons my score changed from MyFico?...'your consumer finance account is not hurting your score as much as before'. Keep in mind that I've never been late on any account, but bringing this account to $0 gave me a 22 point bump. Go figure...