A letter from Barrett Burns, CEO
Ah, February – when folks of all ages turn their thoughts to flowers, hearts, love – and credit scores!
All right, maybe not all romantics think of credit scores, but according to a recent story in The New York Times, when many young people ask potential sweethearts for their numbers, they mean their three-digit credit scores. This practice is increasingly common and accepted, the article explains, if not always comfortable, as in the case of Jessica LaShawn’s first evening out with a particularly suitable suitor:
“It was as if the music stopped,” Ms. LaShawn, 31, said, recalling how the date this year went so wrong so quickly after she tried to answer his question honestly. “It was really awkward because he kept telling me that I was the perfect girl for him, but that a low credit score was his deal-breaker.”
Ouch. All kidding aside, managing finances is an important issue as two individuals begin a long-term relationship. It’s common for couples to have joint bank accounts, auto and home loans, and to be authorized users on each other’s credit cards. If either lovebird forgets to make a payment or ramps up credit card spending, it most certainly can impact the other’s credit score. And when couples apply for joint loans, a lender may pull scores for both individuals.
But as I wrote in Credit.com last year, we shouldn’t obsess over our credit scores, nor get overly upset when they fluctuate slightly. The key is to develop good personal-credit habits over the long term, and let scores take care of themselves. Credit scores go up and down as new data is added every month to the credit files at the three major credit reporting companies (CRCs). Information drops off each file as it ages, and credit score models also give information less weight as it gets older.
Adam Levin, chairman and co-founder of Credit.com, puts it nicely, and has seven tips for being credit “self-aware”:
Rather than viewing a credit profile as manifestation of one’s ability to manage money, I prefer to think of it as a self-awareness tool, and self-awareness is an attractive quality. So how self-aware are you when it comes to your credit?
I encourage you all to take the seven-question quiz Adam devised to test credit self-awareness. The full quiz can be found here. All the questions are relevant but, for space reasons, I’ll share only the last one, which strikes me as extremely important:
When you discover that negative, yet correct, information exists in your credit files, do you develop and implement a plan to minimize the damage? And can you compellingly explain what went wrong, why, and what you are doing to rectify the situation?
The answer to this question is very important to the millions of borrowers whose credit profiles have been damaged by the economic volatility of the past few years. It’s easy to see why some can have a defeatist view of credit score recovery.
VantageScore Solutions’ aim is to help borrowers understand how the data in their files is treated, and to empower and incentivize them to take actions that improve their score. We encourage folks to take the credit score quiz and to use the information on our website including our paper, “Assume the Role of Managing Your Credit Prudently and Watch Your Credit Score Improve.”
Whether it’s to avoid getting texted “It’s not you, it’s your credit score” after a promising first date, or just because it’s the right thing to do, please share this information with others.
This month’s edition of The Score isn’t about dating at all. This edition focuses on the auto finance market, which has been on a healthy tear for the past few years. Included in this newsletter is an article about whether credit standards in the auto loan market have become too relaxed. Also included is an update to the Index of Banking Activity. Our “Did You Know” column focuses on how missing payments on an auto loan impacts a borrower’s credit score.
I am also very pleased to bring you insights on the auto-loan market from Tim Russi, President of Auto Finance at Ally Financial, in our regular “Five Questions With” feature. He shares some findings from a survey of attendees at the National Automobile Dealers Association (NADA) Convention earlier this month. I’m sure you will find his views thought provoking.