7 years is Way too Da## Long!

[grillandwinemaster]

The fact that the credit reporting agencies in essence work for the banks and other lending institutions goes without say. I'm not debating that payment history should not be included. Without a doubt, payment history absolutely must be included. What I am contesting is the length of time before exclusion of negative information.

For instance, A late payment is made by a 20 year old college kid. He will have that mark on his cr for the next 7 years. Assuming a normal "credit usage" lifespan of the avg consumer is between the ages of 20-70, so a 50 year credit usage life span. 7 years represents almost 15% of that users credit lifespan! There is no way that 15% of a credit reporting life span is a reasonable period. More so if that kid never caused the creditor any financial loss.

Never have I mentioned that payment history should not be included. Simply stating that 7 years is too long of a term to essentially punish someone. 

Ask yourself this, WHO came up with the 7 year rule? All things being equal, 7 years, like any other number seems rather arbitrary.

Also, what led the state of NY to implement a 5 year exclusion period for paid collections? Have lenders suffered any additional financial harm from NY'rs because they (lender) was not aware that they (borrower) had a collection drop off the CR two years sooner?

As an example, the insurance industry has chosen a 3 year exclusion period for "minor" traffic infractions. Why the different exclusionary periods? Why not leave a basic speeding ticket on our report for 7 years? The difference is that big banks and other  financial institutions have deep pockets and can afford to pay lobbyists to enact favorable legislation for them. 

Who is looking out for the avg consumer? I thank all of you again for your listening ear, and also for your many fine points!☺

Please excuse my ramblings! 

[Anonymous]

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@Hevj1119 wrote:

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Reports can and do show a payment history.  So the lender will see the accurate history - the payment was $250 / guy paid $500, late the last time.   It's the truth - why hide it?  Dude. made. his. payment, late.  There's a million and one excuses as to why but the bottom line is, that's what happened.  Plenty of people get credit cards and loans with the occasional late payment on their report.  

I think this thread in general loses sight of the fact that a credit report / score is not meant to punish someone for missing payments, nor is it meant as a means to reward someone for making their payments on time.  Your credit score is not for you.  My credit score is not for me.  Our scores are ABOUT us, but not meant FOR us.  A persons credit score is generated solely FOR the LENDER.  The purpose of a persons credit report is to give the LENDER a truthful record of someones history so they can make a decision about whether or not they want to lend that person money.   It would not be fair to the LENDER to paint an inaccurate picture of how someone pays their bills whether that be on time and in full, in full but not on time, extra but late, or not at all.   

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No one is "seeing" anything when 9 times out of 10 applications are approved online in a matter of moments by a computer. 

It has nothing to do with punishing or rewarding someone.  A credit report / score IMO should reflect ones creditworthiness.  It's simply my opinion that if you get a guy that's paying double or triple his monthly payment for YEARS but he has one hiccup along the way that the "good" he did in paying double or triple every month more than outweighs the bad of paying late once.  Just my opinion.  I'm not suggesting that the late payment should be erased from the report; yes, he was late and the report should reflect that.  However, in this case I don't believe the SCORE should reflect that late payment because IMO this particular individual has proven over the course of years on the account by paying double or triple every month that his creditworthiness is stellar.  To me, in terms of FICO score in this particular example I don't feel the late payment should impact this individuals creditworthiness and/or score.  Obviously FICO disagrees with me as you and others may as well, but it's just how I feel.

[mitchblue]

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@grillandwinemaster wrote:

The fact that the credit reporting agencies in essence work for the banks and other lending institutions goes without say. I'm not debating that payment history should not be included. Without a doubt, payment history absolutely must be included. What I am contesting is the length of time before exclusion of negative information.

For instance, A late payment is made by a 20 year old college kid. He will have that mark on his cr for the next 7 years. Assuming a normal "credit usage" lifespan of the avg consumer is between the ages of 20-70, so a 50 year credit usage life span. 7 years represents almost 15% of that users credit lifespan! There is no way that 15% of a credit reporting life span is a reasonable period. More so if that kid never caused the creditor any financial loss.

Never have I mentioned that payment history should not be included. Simply stating that 7 years is too long of a term to essentially punish someone. 

Ask yourself this, WHO came up with the 7 year rule? All things being equal, 7 years, like any other number seems rather arbitrary.

Also, what led the state of NY to implement a 5 year exclusion period for paid collections? Have lenders suffered any additional financial harm from NY'rs because they (lender) was not aware that they (borrower) had a collection drop off the CR two years sooner?

As an example, the insurance industry has chosen a 3 year exclusion period for "minor" traffic infractions. Why the different exclusionary periods? Why not leave a basic speeding ticket on our report for 7 years? The difference is that big banks and other  financial institutions have deep pockets and can afford to pay lobbyists to enact favorable legislation for them. 

Who is looking out for the avg consumer? I thank all of you again for your listening ear, and also for your many fine points!☺

Please excuse my ramblings! 

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It might be on the CR for 7 years but it would effect him for 7 years. Much shorter infact so 15% of his life is not accurate.

[Anonymous]

It may not impact the score for more than a couple of years, but it will still be visible to a lender that actually looks at his report.  For something like an online CC app it won't matter at all, but if he goes for a mortgage at 24 or 25 years old and a potential lender takes some time to actually look at his report while the late may not impact his FICO score at the time, the lender will certainly be able to see that he was late. 

[Thomas_Thumb]

At the end of the day lenders don't generate income without issuing loans. They need to be competitive with other lenders and they will grant loans to applicants with delinquencies that they view as low risk based on information in the credit file. Logically recent behavior is given more weight than 5, 10 or 20 year old payment data.

Even having payment history for life on file would not unduly hurt applicants - IMO. It's cutoff scores and prolonged impact of past sins impacting score that really do the damage. Below threshold => recycle bin, no time to waste on reviewing applicant's file.The primary hurdle is getting past a score barrier. Once an applicant is past the score barrier it's a business risk decision by the lender.  

A conservative bank such as BofA may turn down an applicant for a HELOC but another lender such as Discover that is trying to grow that business segment may view the risk/reward quite differently. I vote for keeping data on file with appropriate adjustment to impact on score.

Fico 09 addresses the score stigma for those who make restitution on a variety of debts and it lowers impact on some aged lates.

As stated previously, the lender is the customer [not the consumer]. Always listen to the voice of the customer if you want to stay in business.

[iv]

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@Anonymous wrote:

I agree with what you're saying, but I think there are exceptions.  My example may have been a bit extreme, but I think there are plenty more realistic situations where the "good" that a person may exhibit in terms of stellar creditworthiness far outweighs the "bad" but FICO models don't give any credit for the "good" above the expectation.  While it's unrealistic that one would ignore 35 payments on a 36 month term, it's not unrealistic for someone to pay extra.  If a monthly payment is $250 and the borrower pays back $500/mo, they are exceeding expectations above and beyond what the terms of the loan state.  I'm not suggesting that anyone should be given "extra points" for exceeding expectations, but I DO believe that exceeding expectations to some degree should combat a minor hiccup along the way.  The guy that pays $500/mo each and every month then on the final month gets his dates screwed up and pays late and scores a 30-day late prior to final payoff.  That to me is an example of something that shouldn't hurt someone when you look at the overall body of work that is the loan from start to finish compared to the guy that made the minimum monthly payment on time for the duration.

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Paying back an installment loan that has a normal monthly payment of $250 at a rate of $500/month... isn't considered by a lender as "exceeding expections".

It's costing them expected interest income.

While that's not a reportable "delinquent" action... don't think that the lender considers it a positive thing.

[Anonymous]

It's costing them expected interest income at the expense of getting their money back faster, so it's wash.  OR, in the case of shady lenders like Wells Fargo Dealer Services (see my thread there) they'll actually attempt to collect the same amount of interest regardless of if you pay down your principle balance faster.  So, in that situation, it certainly would be exceeding expectations as they would have their cake and eat it too.

I suppose speaking in dollars really isn't the proper argument here, as the opposite of "late" payments wouldn't be money but would be "early" payments.  I suppose they are essentially the same thing depending on how your argue it.  In the $250 / $500 example it would be the person paying the $500 payment saying that he was paying this month and next month rather than applying the full $500 toward the single monthly payment.

[grillandwinemaster]

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@Anonymous wrote:

It may not impact the score for more than a couple of years, but it will still be visible to a lender that actually looks at his report.  For something like an online CC app it won't matter at all, but if he goes for a mortgage at 24 or 25 years old and a potential lender takes some time to actually look at his report while the late may not impact his FICO score at the time, the lender will certainly be able to see that he was late. 

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Thank you for wording that so eloquently! 

[pipeguy]

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@grillandwinemaster wrote:

The fact that the credit reporting agencies in essence work for the banks and other lending institutions goes without say. I'm not debating that payment history should not be included. Without a doubt, payment history absolutely must be included. What I am contesting is the length of time before exclusion of negative information.

snip...

As an example, the insurance industry has chosen a 3 year exclusion period for "minor" traffic infractions. Why the different exclusionary periods? Why not leave a basic speeding ticket on our report for 7 years? The difference is that big banks and other financial institutions have deep pockets and can afford to pay lobbyists to enact favorable legislation for them. 

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Not going to discuss this in the forum due to forum rules on politics - but I will say this statement is completely UN-true having to due with FICO scoring.

Fair Isaac Corporation was founded in 1956, not by banks. FICO provides 50+ different flavors of scoring and sells their risk modeling to anyone interested including consumers, lenders, debt collectors, employers, etc. etc. The reason FICO scoring is pretty much universal today is because its accurate in predicting risk - if other models such as Vantage Scoring were better the "industry" would switch and they haven't.

As far as the 7 year reporting, it’s usually about 6.5 years and it's allowed to be 7.5 years (bankruptcy 10 years, age of accounts up to 10 years, even if closed) and more importantly the effects of negatives are very much weighed toward early occurrence meaning a 1 year old 30 day late will ding you a lot more than a 5 year old 60 day late. Just look at the credit profiles of MyFico members many have serious issues including bankruptcy, repos, tax leins and missed payments - THEN look at how quickly they recover and obtain new credit, lots of new credit, over a year or two.

Life isn't "fair", neither is credit reporting if you want to nitpik every factor, but give the over all picture of credit risk, FICO scoring is the standard bearer for good reason, a long long history and that has nothing to to with "lobbyists".   

[Thomas_Thumb]

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@pipeguy wrote:

Fair Isaac Corporation was founded in 1956, not by banks. FICO provides 50+ different flavors of scoring and sells their risk modeling to anyone interested including consumers, lenders, debt collectors, employers, etc. etc. The reason FICO scoring is pretty much universal today is because its accurate in predicting risk - if other models such as Vantage Scoring were better the "industry" would switch and they haven't.

As far as the 7 year reporting, it’s usually about 6.5 years and it's allowed to be 7.5 years (bankruptcy 10 years, age of accounts up to 10 years, even if closed) and more importantly the effects of negatives are very much weighed toward early occurrence meaning a 1 year old 30 day late will ding you a lot more than a 5 year old 60 day late. Just look at the credit profiles of MyFico members many have serious issues including bankruptcy, repos, tax leins and missed payments - THEN look at how quickly they recover and obtain new credit, lots of new credit, over a year or two.

Life isn't "fair", neither is credit reporting if you want to nitpik every factor, but give the over all picture of credit risk, FICO scoring is the standard bearer for good reason, a long long history and that has nothing to to with "lobbyists".   

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Actually,

Lenders have and will continue to migrate toward non Fico scoring models that:

1) Better correlate risk of default with score.

2) Are capable of scoring a greater percentage of the unscored.

Both Fico and TransUnion offer CBIS but, the majority of insurance companies have chosen to use LexisNexis.

Fico has "finally" recognized a need to provide a scoring model for those with minimal credit. Thus, the rollout of Fico XD which is based on a partnership with other companies (as I recall LN is one of those companies). Similarly, TransUnion sees such a demand in the marketplace - so they purchesed L2C. VantageScore recognized this demand some time ago and has been touting their ability to be more inclusive in VS 3.0.

A significant reason for Fico's marketshare is historical data and, to a lesser degree restrictions preventing use of other models - example mortgage industry. 

Make no mistake, credit scoring capabilities are market driven and restrictive legislation regarding what lenders can use is eroding. The models that best meet the needs of the customer [lenders not consumers] have gained traction. It will be interesting to see how things play out over the next 3 to 5 years.