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What you should know about the changes to credit scores

Fri, 2014-08-08 07:00

FICO, the nation's leading provider of those all-important credit scores that so many Americans can feel they have tattooed to their backs, has announced it is changing the formula it uses to score credit. The changes could boost the scores of tens of millions of Americans.

Here are a few things to know about the changes:

Exactly what is FICO changing?

There are two main changes. One is that FICO will stop docking people for being overdue on a payment, as long as they have ultimately paid the bill or settled with a collection agency. Until now, having a collection on your record — even if your balance was at zero — could impact your credit score as much as a foreclosure or a bankruptcy.

The second change will be good news to people with medical debt, which is about 40 percent of Americans. FICO says it will start giving less weight in its credit scoring formula to unpaid medical bills that are with a collection agency.

So how could these changes affect my ability to borrow?

FICO’s goal is to boost lending without creating more risk. Since the recession, it has been hard to get a loan without fairly spotless credit. These new changes could boost certain scores by as much as 100 points, meaning if you have an otherwise good credit record aside from the above issues, you might qualify for a loan you wouldn't have before, or at least for a lower interest rate.

When do the changes go in to effect?

FICO says they will offer the new credit score formulas to credit bureaus in the fall and to lenders by the end of the year. But just because the new formulas are available doesn’t mean they will be used. FICO rolls out new scoring formulas every few years, and it takes a while for many lenders to adopt the newest versions.

Beyond that, even though FICO has changed its approach to unpaid medical bills and debts that have been resolved with collections agencies, those events won’t disappear from your record altogether. Lenders will still be able to see them on your credit report for up to seven years, and can still decide they are a sign of risk.

What are the pros and cons of FICO’s new approach?

Any loosening of credit standards raises worries in some corners, that it could leave lenders open to more risk or entice borrowers deeper in to debt. FICO doesn't think so. But we'll have to see.

If the company is wrong, it could undermine the credibility of their credit scores.

John Ulzheimer, a credit expert at credit education website Credit Sesame and a former manager at FICO, says what is certain is that FICO carefully considered the changes. “The only reason someone like FICO is going to make this type of drastic change to their scoring system is because the science behind it supports the change,” he says.  “As time changes, different data elements on a credit report are tested to make sure they're still predictive of elevated risk.”

For example, as medical expenses have risen sharply in the last few decades, FICO may have found that medical debt is no longer a good predictor of elevated risk.

If FICO is right, and the new scoring system raises credit scores for tens of millions of Americans without opening lenders up to more risk, it could have positive ripple effects on the economy. Part of the slow recovery has been due to tight credit. More people qualifying for loans could create useful momentum.

And don't forget how powerful credit scores have become in our lives. Credit card companies and banks look at them, but so do potential landlords and even potential employers.  

Making online education more like iTunes

Fri, 2014-08-08 05:30

As MIT sees it, education is a lot like the record business used to be: still producing albums, when  people would rather download songs one at a time.

To put it another way, instead of offering semester-long classes, professors need to start offering individual lessons and letting students pick which ones they want.

“The very notion of a ‘class’ may be outdated,” says a new report from an MIT task force on the future of the school. “Much like a playlist on iTunes, a student could pick and choose the elements of a calculus or a biology course offered across [MIT’s online platform] to meet his or her needs.”  

The report notes that 25 percent of professors and 40 percent of students believe classes could benefit from this “modular” approach.

MIT is not the only school thinking this way.  The University of Wisconsin began offering MOOCs this year that offer shorter, more narrowly focused segments.

Also recommended by the MIT task force:

  • Continue to expand online and blended-learning options.
  • Expand the school’s certification program for online courses.
  • Develop ways to use game-based learning in classes.
  • Attract a more diverse group of students to MOOCs– more than 70 percent are male.
  • Make the school more affordable.
  • Admit more students.

 

Weekly Wrap: Blame geopolitics

Fri, 2014-08-08 04:41

Felix Salmon of Fusion and Jo Ling Kent of Fox Business News talk with about geopolitics, economics and where the two shall meet. 

PODCAST: New credit scores

Fri, 2014-08-08 03:00

FICO -- the nation's leading provider of those all-important credit scores so many of us have tatooed on us -- has announced that it is changing the formula it uses to score our credit in a way that could boost the credit scores for tens of millions of Americans. More on what you need to know about your FICO credit score. Plus, things are getting tougher for military personnel who get help on their college tuition. The current rule is people getting assistance have to just pass the classes, but the government now wants them do better than that. Also, Cleveland is a sports town, be it baseball, basketball or badminton. That game is one of 35 featured in the Gay Games, which start Saturday. The international Gay Games 9 competition is expected to bring 30,000 visitors to the area. More on what some small businesses are doing to get fans into their establishments.

 

Military wages war on bad grades

Fri, 2014-08-08 02:30

As of September, active service members who tap the military's tuition assistance program could be financially on the hook if they get bad grades.

Active members of the military can get up to $4,500 a year in tuition assistance. Under the current rules, they just have to pass classes they take off-duty to get tuition covered up to 100 percent, depending on the branch of the military they’re in.

But starting in early September, troops will have to earn a C or better in undergraduate classes, and a B or better in graduate work. And they can’t settle for grades of “incomplete.” Otherwise, they'll have to pay back the course tuition back.

“Tuition dollars and military student time is both limited and valuable,” says Defense Department spokesman Lt. Cmdr. Nate Christensen. “So, we want to make sure they maintain focus and have an understanding of the expectations that are required of them.”

Christensen says the Pentagon could waive the requirements in certain cases and cut soldiers slack for events like deployments.

Emma Scherer of Student Veterans of America says the threat of paying back tuition for anything less than an average grade could scare people off.

“We don't want to put roadblocks in the way of service members or veterans getting to education, and this clearly does that,” she says.

Student financial aid expert Mark Kantrowitz, publisher of Edvisors.com, says having to back-pay tuition could also disrupt service members’ long-term education plans.

“They’d either owe the military or owe the college, and that could have consequences for their ability to complete college,” he says.

The changes come as the Pentagon faces long-term budget cuts. 

Silicon Tally: #Scrabble

Fri, 2014-08-08 02:00

It's time for Silicon Tally. How well have you kept up with the week in tech news? This week, we're joined by Megan Garber, staff writer at The Atlantic. var _polldaddy = [] || _polldaddy; _polldaddy.push( { type: "iframe", auto: "1", domain: "marketplaceapm.polldaddy.com/s/", id: "silicon-tally-hashtag-scrabble", placeholder: "pd_1407500322" } ); (function(d,c,j){if(!document.getElementById(j)){var pd=d.createElement(c),s;pd.id=j;pd.src=('https:'==document.location.protocol)?'https://polldaddy.com/survey.js':'http://i0.poll.fm/survey.js';s=document.getElementsByTagName(c)[0];s.parentNode.insertBefore(pd,s);}}(document,'script','pd-embed'));

Corporate earnings: up. Hiring: not so much.

Fri, 2014-08-08 02:00

Corporate earnings reports for the spring quarter are mostly in by the first week in August. Overall, they paint a pretty rosy picture for America, Inc., as Bloomberg predicts profits at S&P 500 companies rose nearly 9.5 percent; sales rose more than 4 percent. So far, 75 percent of companies that have reported earned more than equity analysts predicted.

“The results have been really solid,” said chief economic strategist John Canally at LPL Financial in Boston. He said the results bode well for the second half of 2014, especially since GDP growth has picked up since the winter reversal.

Canally said companies are mostly plowing their profits back into the company; not adding to their payrolls, or investing in new plant and equipment.

“It’s mergers and acquisitions, increasing dividends, share buybacks,” Canally said. “Companies are doing what companies normally do: trying to boost share price for their shareholders. They’re just not doing a lot of hiring right now.”

Paul Ashworth, chief U.S. economist at Capital Economics in Toronto, said U.S. companies have increasing worries overseas — where a lot of their profits are earned — due to geopolitical and economic crises in Russia-Ukraine, Iraq-Syria, Israel-Palestine, Argentina, and Europe.

“Some of those geopolitical events have made people rethink how optimistic they are about the world economy over the next 12 months,” said Ashworth — Which, he said, explains some of the stock market's recent slump.

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