Credit card companies saw a decrease in the number of credit card accounts falling into default in the month of December than in any month in 2010. All six of the biggest card issuers posted their lowest rates for charge-off or accounts written off as uncollectible. This is potentially good news for the economy.
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Here are the basic parameters of how FICO credit score is ascertain (based on an article provided by Yahoo). Using the information in a borrower’s credit report, FICO breaks that information into categories.
Here’s a breakdown of the five elements of the FICO score:
1. Payment History: 35 Percent of the Total Credit Score
Based on a borrower’s payment history, making the repayment of past debt the most important factor in calculating credit scores. According to FICO, past long-term behavior is used to forecast future long-term behavior.
2. Debt Amounts — 30 Percent
Based on a borrower’s total outstanding debt. Revolving lines of credit, which allow a consumer to borrow as much or as little as desired up to a limit (versus installment loans where a set amount — say, $20,000 plus interest for a car — is determined at the outset), are more heavily weighted. Credit cards are a type of revolving account.
Since FICO views borrowers who habitually max out credit cards — or who get very close to their credit limits — as people who cannot handle debt responsibly, a borrower should maintain low credit card balances. Experts recommend that the amount owed should not exceed 30 percent of the individual’s credit limits. That 30 percent rule of thumb applies to each individual credit card as well as the overall level of debt.
The final components of a FICO credit score get less weight in the score’s calculation. “The remaining one-third of your score is determined by how long you have managed credit, to what degree you have pursued new credit recently and the variety of credit types you have successfully handled,” Watts says.
3. Length of Credit History — 15 Percent
Based on the length of time each account has been open and the length of time since the account’s most recent action.
4 and 5. New Credit and Credit Mix — Each Comprise 10 Percent
Borrowers, even those new to credit, should avoid opening too many credit lines at the same time, since such behavior could suggest they are in financial trouble and need significant access to lots of credit. FICO suggests that borrowers only take on additional credit when they must have it or when it makes sense financially.
Credit mix, meanwhile, is somewhat of a vague category, but experts say that repaying a variety of debt indicates the borrower can handle all sorts of credit. According to FICO, historical data indicates that borrowers with a good mix of revolving credit and installment loans generally represent less risk for lenders.
American Corrective Counseling Services (ACCS), based in San Clemente, Calif., agreed to a $2.55 million settlement in a class action law suit in Pennsylvania. While the company did not admit any wrongdoing, the lawsuit is the first in a series of lawsuits against the company.
In late 2007 and early 2008, ACCS lost a series of cases that exposed it to civil lawsuits. The firm argued it was shielded from civil cases due to its business relationships with public offices. However, after the company lost two cases in which it was held the company was subject to civil lawsuits, consumer attorneys began to assemble classes to initiate lawsuits against ACCS.
The recent lawsuit asserted ACCS sent out letters to consumers who bounced checks at various businesses. The letters appeared to come from district attorney offices around the state of Pennsylvania, warning recipients they were under criminal investigation for bouncing checks. ACCS asserted the consumer could resolve the matter if the debt was paid with a penalty and if the consumer attended a one-time educational course.
Although ACCS had contracts in place with numerous district attorneys to send such letters, the civil lawsuit alleged it was a deceptive and unethical practice to threaten consumers with criminal action when no action would likely be taken.
Approximately 15,000 Pennsylvanians were represented in the lawsuit by the Community Justice Project in Pittsburgh. Because ACCS filed for bankruptcy protection in January 2009, the company was not able to pay the $2.55 million settlement. Therefore, the Community Justice Project hopes to obtain the money from the company’s insurer.