topic Re: Consumer Finance Companies in Understanding FICO® Scoring

Consumer Finance Companies

Anonymous — Tue, 01 May 2007 23:16:19 GMT

The MyFico report said one factor causing my lower score is my use of a consumer finance company. I'm not entirely sure that this means, but I'm assuming it's my auto loan from HSBC. The loan is about 13 months old, I'm paid three or four months ahead on it, and have never paid late. Am I better off to try to refinance my car with a bank/credit union instead? How much is this really hurting my score (635)?

Re: Consumer Finance Companies

Anonymous — Sat, 05 May 2007 17:23:48 GMT

It must be. I received that message also. At the time I had a card from HSBC, which is a finance company. I closed the acct. because it looks like finance co's look like u can't get credit elsewhere.If u could refinance through cu that would be good, plus they usually have great rates

Re: Consumer Finance Companies

Tuscani — Sat, 05 May 2007 20:00:10 GMT

I would refi or ask them to remove the "consumer finance" notation.

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.

Message Edited by Tuscani on 05-05-2007 03:00 PM

Re: Consumer Finance Companies

Anonymous — Fri, 18 May 2007 08:49:08 GMT

Hmm. If paid and closed, it is good history, which raised your score. Removing it might lower your score and probably will. Personally I would never delete anything with good history. Anything with good history is better for your score. If you have a Consumer Finance Company high interest loan, PAY IT OFF, Close it! While it won't hurt your score, lenders will shy away from you until it is closed. After it is closed, it can only help your score.

It might be your auto loan too falling under finance company, ect installments. Open loans drop scores because they are debt. That simple. Pay it off and score will come up. I have never heard of any installment after being closed dropping a score if it was paid on time. Maybe if someone went to a debt consolidation place and set a fixed payment, but that would fall under something different than Consumer Finance. All closed installments raise scores not drop them regardless of title. If anyone has any documentation to show other wise please msg them to me or post them here.

Message Edited by ilovepizza on 05-18-2007 01:49 AM

Re: Consumer Finance Companies

Tuscani — Fri, 18 May 2007 10:56:35 GMT

ilovepizza wrote:
Hmm. If paid and closed, it is good history, which raised your score. Removing it might lower your score and probably will. Personally I would never delete anything with good history. Anything with good history is better for your score. If you have a Consumer Finance Company high interest loan, PAY IT OFF, Close it! While it won't hurt your score, lenders will shy away from you until it is closed. After it is closed, it can only help your score.
It might be your auto loan too falling under finance company, ect installments. Open loans drop scores because they are debt. That simple. Pay it off and score will come up. I have never heard of any installment after being closed dropping a score if it was paid on time. Maybe if someone went to a debt consolidation place and set a fixed payment, but that would fall under something different than Consumer Finance. All closed installments raise scores not drop them regardless of title. If anyone has any documentation to show other wise please msg them to me or post them here.

Message Edited by ilovepizza on 05-18-2007 01:49 AM

I wouldn't agree that "All closed installments raise scores not drop them regardless of title".

Once it becomes a closed account instead of open you can take a score hit.

However, IMO paying off or down on installment loans has no effect on our FICOs. In fact, My brother paid off a car loan after having it for a year. He had $13,000 left on it. EX dropped 50 point... EQ dropped 30 points... and TU 20 points. Believe me FICO loves a good mixture of accounts. Luckily his scores rebounded a few months later so it was short lived!

Re: Consumer Finance Companies

Anonymous — Fri, 18 May 2007 17:28:18 GMT

Agree with Tuscani. The last loan I financed was a debt consolidation loan. I have a Cap One auto loan that I've toyed with just paying off because it's high interest and I only owe $7K. But because I had paid and/or closed a bunch of accounts in the last year as part of my credit rebuilding process, I only had a few open TL's thus my file was rather thin. His advice: Keep the Cap One open for another year. Let your other TL's build up a little. Every month it reports as paid on time it's another brick in the foundation, and shows future creditors that you can pay your bills responsibly. I think it was the right move in retrospect. This applies to a specific scenario of course. If I had a gang of open positive TL's then closing one wouldn't have as much effect and I'd dump it to save the interest.

Message Edited by devhip on 05-18-2007 10:28 AM

Re: Consumer Finance Companies

fused — Tue, 22 May 2007 01:14:12 GMT

Tuscani wrote:

ilovepizza wrote:
Hmm. If paid and closed, it is good history, which raised your score. Removing it might lower your score and probably will. Personally I would never delete anything with good history. Anything with good history is better for your score. If you have a Consumer Finance Company high interest loan, PAY IT OFF, Close it! While it won't hurt your score, lenders will shy away from you until it is closed. After it is closed, it can only help your score.
It might be your auto loan too falling under finance company, ect installments. Open loans drop scores because they are debt. That simple. Pay it off and score will come up. I have never heard of any installment after being closed dropping a score if it was paid on time. Maybe if someone went to a debt consolidation place and set a fixed payment, but that would fall under something different than Consumer Finance. All closed installments raise scores not drop them regardless of title. If anyone has any documentation to show other wise please msg them to me or post them here.

Message Edited by ilovepizza on 05-18-2007 01:49 AM

I wouldn't agree that "All closed installments raise scores not drop them regardless of title".
Once it becomes a closed account instead of open you can take a score hit.
However, IMO paying off or down on installment loans has no effect on our FICOs. In fact, My brother paid off a car loan after having it for a year. He had $13,000 left on it. EX dropped 50 point... EQ dropped 30 points... and TU 20 points. Believe me FICO loves a good mixture of accounts. Luckily his scores rebounded a few months later so it was short lived!

Maybe you can give your insights on this Tuscani. This raises a very interesting question! If FICO scoring models/formulas can distinguish btw prime and subprime loans (i.e. consumer finance companies like say citifinancial), shouldn't they able to distinguish btw prime discover or amex cc's versus subprime cc's such as orchard bank or first primere when arriving at a score? I have read on other threads FICO does not punish someone for having one, some or too many subprime cc's but they do for subprime loans. Just food for thought

Re: Consumer Finance Companies

Tuscani — Wed, 23 May 2007 12:12:47 GMT

The FICO formula does not distinguish between prime/subprime per se. The way it identifies a 'consumer finance' account is through the bureau subscription code -- the lender's ID# at the bureau -- that, among other things, indicates what kind of business it is. (This is also how mortgage and auto inquiries are distinguished from other inquiry types.) I believe the reason why the suggestion above won't work is because the portion of these codes that provide this identification are industrywide and not unique to a particular lender, although a lender typically has multiple subscriber codes for different parts of the business. So, for example, while the score can tell if the lender is considered a consumer finance company, it can't identify a particular product of that lender's as prime/subprime.

Re: Consumer Finance Companies

Anonymous — Wed, 23 May 2007 13:46:34 GMT

Could other installments such as personal misc. loans from a sub prime lender ie, CapOne be be confused as a negative type of account loan?

Message Edited by ilovepizza on 05-23-2007 06:46 AM

Re: Consumer Finance Companies

fused — Wed, 23 May 2007 19:01:33 GMT

Tuscani wrote:
The FICO formula does not distinguish between prime/subprime per se. The way it identifies a 'consumer finance' account is through the bureau subscription code -- the lender's ID# at the bureau -- that, among other things, indicates what kind of business it is. (This is also how mortgage and auto inquiries are distinguished from other inquiry types.) I believe the reason why the suggestion above won't work is because the portion of these codes that provide this identification are industrywide and not unique to a particular lender, although a lender typically has multiple subscriber codes for different parts of the business. So, for example, while the score can tell if the lender is considered a consumer finance company, it can't identify a particular product of that lender's as prime/subprime.

Very interesting, how did you find this out? Personally, do you think it would be fair for consumers if FICO had the capability to distinguish btw prime and subprime for loans and cc's and changed their scoring models accordingly? For example, reward those who have more prime TL's than those who do not.

Re: Consumer Finance Companies

Anonymous — Wed, 23 May 2007 20:20:21 GMT

Since many CC companies offer both prime and sub-prime cards, you can't just label each CC company as one or the other, and I don't think there's any easy way to distinguish individual accounts. For example, I originally applied for one Chase card, but I currently have four because Chase bought accounts from other CC issuers who had previously bought accounts, etc. The interest rates and credit limits for the four accounts are all over the map, and I'm sure a couple of them would have been considered sub-prime when opened. Chase would need to somehow individually classify each account, and then the CRA would need to apply a more complicated scoring formula, based on the classifications. And in reality, I treat all the accounts the same. It makes no difference to me whether I opened Account A ten years ago when my score was 600 and opened Account D five years ago when my score was 720, and I don't think having Account A on my record means I am more of a credit risk.

In addition, CC companies offer dozens of cards - some might require a 620 score, some a 630, some a 640, etc. It seems like it would be extremely complicated to classify each card, and then decide where to draw the line in order to penalize certain cards.

Re: Consumer Finance Companies

Tuscani — Wed, 23 May 2007 20:49:33 GMT

fused111 wrote:

Tuscani wrote:
The FICO formula does not distinguish between prime/subprime per se. The way it identifies a 'consumer finance' account is through the bureau subscription code -- the lender's ID# at the bureau -- that, among other things, indicates what kind of business it is. (This is also how mortgage and auto inquiries are distinguished from other inquiry types.) I believe the reason why the suggestion above won't work is because the portion of these codes that provide this identification are industrywide and not unique to a particular lender, although a lender typically has multiple subscriber codes for different parts of the business. So, for example, while the score can tell if the lender is considered a consumer finance company, it can't identify a particular product of that lender's as prime/subprime.

Very interesting, how did you find this out? Personally, do you think it would be fair for consumers if FICO had the capability to distinguish btw prime and subprime for loans and cc's and changed their scoring models accordingly? For example, reward those who have more prime TL's than those who do not.

I would tell you but I'd have to kill you. Sorry.

Re: Consumer Finance Companies

fused — Wed, 23 May 2007 20:52:29 GMT

You must be in the KNOW!

Re: Consumer Finance Companies

Anonymous — Thu, 24 May 2007 04:47:28 GMT

After learning this very insightful information, would it be safe to say, if someone is having debt trouble and needs to consolidate, they are better off choosing another titled loan (if they have that option)?

Citi Financial also other titled installments:
..Besides => "Bill Consolidation" = (negative)

What about these titles below.
...."Extra Cash"
...."Re-Finance loans"
...."Unexpected Expenses"
....*Personal Loans*

I admit, I take out these loans some times for quick easy cash. Is this bad? Thank you in advance for your answers and opinions. :-)

Re: Consumer Finance Companies

Tuscani — Thu, 24 May 2007 12:10:35 GMT

ilovepizza wrote:
After learning this very insightful information, would it be safe to say, if someone is having debt trouble and needs to consolidate, they are better off choosing another titled loan (if they have that option)?

Citi Financial also other titled installments:
..Besides => "Bill Consolidation" = (negative)

What about these titles below.
...."Extra Cash"
...."Re-Finance loans"
...."Unexpected Expenses"
....*Personal Loans*

I admit, I take out these loans some times for quick easy cash. Is this bad? Thank you in advance for your answers and opinions. :-)

You need to make decisions that improves your quality of life and situation. I could care less about the type of account or affects on my score if I am saving money and less stressed.

Re: Consumer Finance Companies

Anonymous — Thu, 24 May 2007 15:33:37 GMT

@Tuscani wrote:
You need to make decisions that improves your quality of life and situation. I could care less about the type of account or affects on my score if I am saving money and less stressed.

Very true! But I ask this specifically because it effects me directly. I try to diversify credit when opportunity knocks. Ultimately, I have room to improve my scores. If I choose to take out one of the above higher interest loan titles to try and help my score next time I need money (instead of my low apr offers available from credit cards) would these titles effect my score negatively? I would hate to pay a higher % rate "Today" by choice to find out it had the opposite effect on my score. This question hits my wallet. So you see why this question is very important to me. I am going out of my way to diversify at a cost to save lots more money later.

Thanks again in advance.

Re: Consumer Finance Companies

MidnightVoice — Thu, 24 May 2007 15:48:08 GMT

My objective is to get at least two of my scores and two of my wife's over 720, preferably over 750, then I don't think it will make any difference what my scores are to how much anything costs me.

And I will be to the first point very soon, and the second early next year, with a total of two CCs, a gas card, a store card and a dentist's card (wife only) and a mortgage and one installment loan. And a very low (by this boards standards) amount of available credit ($5,000 for me, $10,500 for my wife, who has this ridiclous dentist's card with a $5,500 limit to pay one $800 bill two years ago!).

I think paying bills over time and having low utilization does more for the score than all the fiddling around in the world

Re: Consumer Finance Companies

Anonymous — Thu, 24 May 2007 16:56:26 GMT

@MidnightVoice wrote:
does more for the score than all the fiddling around in the world

And you will definitely get their in time. But what about those people that don't have 10-30 years to get there? A large part of my quality of life is determined by my FICO score. Too many of us use credit for needs and not wants. Money that we don't have because of events beyond our control. I would love lower interest rates for my bigger needs. That would make my life better. This is what I am trying to do. How many people were denied by instant approvals? Was it strictly on their FICO score? In my "opinion" I think "instant denials" work that way. Last year I was repeatedly denied based on credit scores. Score means everything some times, but not in all cases. Getting a car and a house are some of the few exceptions where a lower score doesn't have to stop you. But mostly every thing else that I found "personally" had a FICO score determine my outcome.

I think their should be a few more points on the FICO score for anyone belonging to this Forum. HooHaa! Hehe. But seriously I have done better fiddling than had I not. :-)

Re: Consumer Finance Companies

Anonymous — Thu, 24 May 2007 16:59:25 GMT

You can also argue that someone was denied because of a bankruptcy. But wouldn't their score be low too. It is the same thing. If it were possible to have an 800 FICO score with a bankruptcy, I think in my "opinion" they would not be denied.

Re: Consumer Finance Companies

Anonymous — Thu, 24 May 2007 22:26:47 GMT

I saw on a Suze Ormon show once that surprisingly, your score goes up some soon after a BK!

The reason being, you are not eligible to file another BK anytime soon.